UniCredit sets high M&A bar after calling off Russian deal By Reuters

By Valentina Za

MILAN (Reuters) -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…