By Valentina Za
MILAN -UniCredit will continue to study potential mergers and acquisitions after deciding against a Russian deal due to geopolitical risks but won’t stray from plans to return billions in capital to shareholders, Chief Executive Andrea Orcel said.
The Italian bank reported better-than-expected 2021 results on Friday, with revenue growing and costs in check, and said it would return 3.75 billion euros ($4.2 billion) to investors through dividends and share buybacks.
Orcel, the former investment banking chief at Swiss lender UBS who joined UniCredit in April, is betting on bold capital distribution targets to lift the bank’s market value.
UniCredit trades at a discount to rivals, making it harder to use its shares as currency in a merger, though they have outperformed since Orcel pledged to generate over 16 billion euros in capital by 2024 and return it to shareholders.
As of Thursday, UniCredit shares had climbed 19% since Dec.9, when Orcel unveiled his strategy, against a 9% rise in the broader European banking sector.
Orcel’s track record as one of Europe’s most experienced dealmakers has fuelled persistent speculation that he could pull off a merger deal, something his predecessor Jean Pierre Mustier sought in vain to achieve.
“It’s our job to review all the opportunities in all the markets where we are … but the bar for M&A is high,” Orcel said. “We may enter data rooms, talk to others … but those discussions do not mean at all that we’re going to close.”
A deal would need to bring a high return on investment without jeopardising capital generation and distribution plans, meaning bolt-on transactions were more likely, he said.
COMMITTED TO TARGETS
“I’ve committed to certain targets in terms of profitability, risk profile, distribution in excess of 16 billion euros and sustainable distribution thereafter. Whatever we do in M&A you should not expect we could derail in any way from those targets,” Orcel told reporters on a call.
He confirmed that UniCredit, which walked away from a rescue deal with the Italian state for rival Monte dei Paschi in October, had also dropped a potential bid for Russian state-owned Otkritie Bank amid escalating tensions over Ukraine.
Following calls by regulators for lenders to be on alert, Orcel said UniCredit’s existing Russian business was prepared to adjust to any sanctions, as it had done in the past.
UniCredit, which entered Russia in 2007 and now ranks as the country’s 12th biggest bank, would have exchanged its local operation for a controlling stake in Otkritie, which the central bank is expected to privatise through a listing.
In this way, UniCredit would not have significantly increased its exposure to Russia, which accounts for less than 5% of the bank’s equity, while boosting its position in the market and saving costs, Orcel said.
Reversing earlier gains, UniCredit shares were down 0.5% by 1433 GMT, while European banks had lost 1.6% amid a broader sell-off across stock markets.
UniCredit reported a 5% rise in 2021 revenue to 18 billion euros, ahead of its forecast for more than 16 billion. At 3.9 billion euros, underlying profit also surpassed a target of more than 3.7 billion.
“Onwards and upwards,” Citi analysts said, adding that results showed the new group strategy was bearing fruit. “All onboard the Orcel-Express for higher return.”
Overall costs were also lower than the bank’s forecasts, despite rising variable pay for executives, and UniCredit reported a slightly higher-than-expected core capital ratio.
Restructuring costs and other charges linked to disposals of non-core assets under Orcel’s 2022-2024 plan led to a 1.44 billion euro loss in the fourth quarter, worse than an average forecast of 1.15 billion in an analyst consensus from the bank.
UniCredit also said it had struck new insurance deals with Allianz, which gave it the chance to bring its Italian joint venture with the German insurer in-house in 2024, if capital rules on insurance holdings favoured such an option.
Orcel said, however, that he did not expect at present to exercise it, and would continue to work with Allianz after extending their Italian accord another five years to 2027.
Under the new agreement with Allianz, which owns 3.13% of UniCredit, the Italian lender will be able to distribute its own products through the insurer’s digital platform.
Orcel also said UniCredit would continue to streamline “substantially” its multiple insurance partners but it did not expect to go down to one.
($1 = 0.8985 euros)
(Additional reporting by Gianluca Semeraro; Editing by David Clarke)