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UniCredit shuns Italy M&A wave, sees opportunities in COVID-19 crisis

MILAN (Reuters) - UniCredit vowed to stay out of a possible merger wave in Italy, saying on Thursday COVID-19 turmoil could help it win clients on its home turf without a tie-up after reporting higher than forecast quarterly results.

FILE PHOTO: A view of the Unicredit headquarters in Milan, Italy March 2, 2020. REUTERS/Yara Nardi/File Photo

Rival Intesa Sanpaolo is set to overtake UniCredit as Italy’s biggest bank after it snapped up UBI Banca this month, in a move seen piling pressure on UniCredit boss Jean Pierre Mustier who has turned the lender around in the past four years but has failed to clinch a mooted cross-border deal.

The Intesa-UBI merger is seen triggering further consolidation and bankers say UniCredit could face pressure from Rome to buy Monte dei Paschi, the problem child of Italian banking which must be re-privatised next year.

Mustier has ruled out mergers and is focused instead on raising investor returns to resurrect UniCredit’s ailing share price, a strategy which has hit a snag due to supervisory demands that banks preserve capital buffers in the pandemic.

“We should just focus on our business and benefit from the market disruption which is being brought by COVID to target clients with a very good risk profile,” Mustier told analysts.

The new Intesa-UBI group will deliver a fifth of all main banking products in Italy, against UniCredit’s 11% market share.

But Mustier said it was crucial to be “extremely disciplined on the risk side” in a market where loan losses would continue to climb, especially once debt holiday schemes ended.

“I don’t think there is a magic level of market share,” he said, adding mergers entailed more staff, branches and impaired loans, all of which UniCredit had worked to reduce.

He declined to provide an update on the timing of a plan to house UniCredit’s foreign business in a sub-holding company to lighten funding requirements for Italy’s only globally systemically important bank.

A person familiar with the matter has told Reuters the separation of UniCredit’s domestic business from operations in Austria, Germany and eastern Europe could prompt Mustier to drop his “no-M&A” mantra. UniCredit declined comment.

TRADING GAINS

By 1458 UniCredit shares were down 5.1% at 7.668 euros after an early positive reaction to the bank’s earnings, with traders saying Mustier’s comments had stunted any M&A appeal. The stock, which trades at 0.3 times book value against Intesa’s 0.6 times, languishes well below a 2020 high of 14.442 set in February.

A jump in trading gains and cost cuts helped UniCredit top market expectations with a second-quarter profit of 420 million euros ($499 million), down 77% from a year earlier.

The bank booked 937 million euros in loan writedowns, boosting “overlay” provisions on performing loans that could turn sour as government support measures wane.

To maintain its extremely cautious approach to virus-related losses, UniCredit will book more such provisions in the second half, leading to an underlying net profit - which strips out one-off items - broadly in line with the first half’s 368 million euros, despite improving revenue trends.

UniCredit confirmed its 2021 underlying profit goal and Mustier expressed confidence the ECB would allow it to resume its policy from 2021 to pay out 50% of underlying net profit to shareholders.

On top of that, UniCredit also plans to gradually return excess capital to shareholders, which Citi analysts projected at around 9 billion euros.

The bank’s core capital strengthened in the quarter to 13.85% of assets from 13.44% in March.

($1 = 0.8418 euros)

Additional reporting by Gianluca Semeraro and Giancarlo Navach in Milan, with Pamela Barbaglia in London; Editing by Silvia Aloisi and David Holmes

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