UniCredit’s CEO leads bank towards huge gains

UniCredit Chief Executive Andrea Orcel, the former Merrill Lynch and UBS banker, has expressed confidence as the bank continues to outperform profit forecasts for the 11th consecutive quarter. Investors who bought UniCredit’s shares upon Orcel’s arrival in April 2021 have seen a remarkable 190% return and received 9 billion euros in buybacks and dividends, with at least another 6.5 billion to come.

Orcel aims to position UniCredit as the “bank of Europe,” but his ambitions for mergers and acquisitions in the euro zone face challenges. Despite having the largest war chest among European lenders, Orcel sets a high bar for potential deals in the fragmented capital markets of the euro zone.

Having bolstered profits with minimal capital deployment and utilising cash for buybacks, Orcel is now in a position to consider more transformative moves, potentially a merger. He is viewed as a potential consolidator of European banking, and his three decades in investment banking advising on major European deals provide a privileged position for such endeavours.

The recent purchase of Greece’s 9% stake in Alpha Bank and a commercial partnership with the Athens-based lender marked UniCredit’s first international foray under Orcel. The move aligns with Orcel’s strategy, aiming for an industrial fit and a sufficient boost in earnings per share to secure investor rewards. He seeks a 15-20% return on investment, according to sources.

UniCredit’s share buyback strategy has significantly increased its price-to-book value, strengthening its position for potential merger deals. While Commerzbank, seen as a potential partner, trades at 40% of its book value, UniCredit is at nearly 70%.

Orcel’s plans for growth and potential mergers face challenges due to uneven regulations across the euro zone and the tight bank-sovereign nexus. Nevertheless, Orcel’s revitalisation of UniCredit with a unified strategy across its 13 markets has been praised for its impressive earnings, strong cash generation, and consistent buybacks, making UniCredit a potential consolidator in the banking industry.