Commerzbank in larger payout pledge ahead of UniCredit talks

Commerzbank is seeking to woo investors ahead of meetings with Italy’s UniCredit, announcing on Thursday an increase in profit targets and shareholder payouts.

The German lender said that its net profit should rise to more than €3bn by 2027.

More than 90% of that is earmarked for shareholder payouts in the years between 2025 and 2027.

Commerzbank predicted a return on tangible equity of more than 12% by 2027, higher than the previously communicated 11.5%.

“We are continuously developing our robust growth history based on very solid assumptions and are sharpening our financial targets,” said future CEO Bettina Orlopp.

“Despite conservative planning, we expect to earn our cost of capital faster and return even more capital to our shareholders.”

Jens Weidmann, chairman of the Supervisory Board, added: “Commerzbank is continuously expanding its independent position as a strong pillar in the German banking market and a reliable partner to the domestic economy. As ‘Bank for Germany’, we firmly believe that it has considerable growth and appreciation potential.”

Opposition to a merger

The optimistic predictions come as Commerzbank prepares to meet for a first round of talks with UniCredit on Friday.

The Italian bank has been increasing its stake in Commerzbank, a move provoking fierce opposition in Germany.

The bank’s management, employees, and high-profile politicians have all voiced their opposition, fearing a merger could lead to job cuts and the hindering of lending to small and medium-sized businesses.

While mergers can allow banks to become more resilient by diversifying their assets, some German critics are concerned about losing control of a critical national institution.

Commerzbank, for example, handles nearly one third of the country’s foreign trade payments.

Orlopp’s cautious approach

At an investor conference on Thursday, future CEO of the German lender Orlopp ruled out any hasty decisions regarding the takeover.

“Sometimes it makes sense, sometimes it doesn’t make sense, and that is something we need to find out jointly,” she said.

She warned that the bank wasn’t going to engage in any “crazy” sell-downs, acquisitions or “stupid things”.

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On Wednesday, one of Germany’s largest asset managers encouraged Commerzbank to engage with UniCredit.

“Cooperation with UniCredit – in whatever form – does not have to be to the detriment of Commerzbank,” said Union Investment fund manager Alexandra Annecke.

“We therefore expect a willingness to enter into an open-ended dialogue,” she added.

Union Investment holds 1.5% of Commerzbank.

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It is not yet clear exactly what UniCredit’s plans are.

Andrea Orcel, the group’s CEO, recently suggested UniCredit may pursue a full merger, although the Italian lender has also signalled its intention to sell its stake if favourable terms cannot be reached.