By Alessandro Boratti, Financial Institutions

UniCredit (A/Stable) is actively reinforcing its strategic footprint, as evidenced by its recent initiative to increase its stake in Alpha Bank (BBB/Stable) from 9.6% to 20%. This move, executed using equity derivatives, is similar to the strategy it used for Commerzbank, with the notable exception that the Alpha transaction is friendly.

UniCredit will be able to convert its derivatives into shares by the end of 2025, pending regulatory approvals. Meanwhile, the group has sought authorisation from the European Central Bank to increase its stake in the Greek bank to over 10% and potentially to 29.9%. The expected capital impact of around 40bp is manageable considering UniCredit’s minimum buffer of around 590bp as of March 2025.

Increasing its stake to 20% will allow UniCredit to adopt the equity method of accounting and “better reflect the positive contribution of the strategic partnership”, the Italian bank stated. The transaction is expected to generate additional net profits of around EUR 180m per year, which the group intends to return to shareholders in line with its distribution policy.

As well as UniCredit’s strategic investment in the Alpha group, the two groups already share a broader partnership, including the merger of their Romanian subsidiaries (with Alpha retaining a 9.9% stake in the combined entity), and a commercial agreement for Alpha to distribute the Italian group’s asset management and bancassurance products. The two groups are also collaborating on a joint venture in pension savings products (AlphaLife), with Alpha holding a 49% stake.

While not entirely off the table, we do not expect UniCredit to make a full offer for Alpha, but the higher stake underlines its long-term commitment to the partnership. Following years of structural reforms that have resulted in a drastic reduction in non-performing loans and improved financial stability, the Greek banking market offers promising growth opportunities.

The Greek economy is expected to grow above potential in the years ahead, supported by the implementation of the National Recovery and Resilience Plan. Private-sector loan growth reached 7% in 2024 and Scope upgraded Greece’s sovereign credit rating to BBB/Stable in December 2024.

Hurdles in larger transactions

UniCredit’s successful bolt-on acquisitions and investments (including Polish Banking-as-a-Service provider Vodeno and Aion Bank, the Belgian digital bank that fronts it) contrast with the hurdles it has encountered in executing two ongoing larger transactions.

Its bid for Banco BPM has faced setbacks due to unfavourable rulings from the EBA and ECB, particularly regarding the application of the Danish compromise to the acquisition of asset manager Anima by BPM’s insurance subsidiary, which was launched prior to UniCredit’s bid for BPM. More recently, the Italian government imposed several conditions and exercised its so-called golden power over the UniCredit/BPM deal. These include a rapid exit from Russia, adherence to a five-year loan-to-deposit target within the Italian perimeter, and restrictions on UniCredit’s right to sell stakes and manage the assets of Anima.

UniCredit’s CEO has publicly stated that the bank might not complete the acquisition unless the Italian government modifies its conditions. The group has filed an appeal to the regional administrative court (TAR) against the application of the golden power, while obtaining a 30-day suspension of the bid from Italy’s market watchdog Consob.

The BPM deal would have several strategic advantages for UniCredit. It would consolidate its position as Italy's second largest banking group, challenging Intesa's leadership. The domestic market share of the combined entity in loans and deposits would increase to 15% and 14% respectively (from 9% in both cases) while pricing power would increase, particularly in wealthy northern Italian regions like Lombardy, Piedmont and Veneto. Should the transaction ultimately fail, UniCredit may need to reconsider its strategy for domestic growth.

In Germany, UniCredit has obtained authorisation to increase its stake in Commerzbank to just below 30%. We believe that management remains focused on a full takeover, given the strategic advantages that a merger would bring, such as scale, synergies and geographic diversification. However, the political climate remains largely unchanged since last autumn, despite recent elections: Chancellor Friedrich Merz has spoken out against a full takeover by UniCredit. Without political endorsement or support from the German government, prospects for a complete acquisition remain limited.

While pulling back from major deals could be perceived as a strategic setback, we view UniCredit’s actions as evidence of a disciplined M&A strategy focused on risk-adjusted returns and long-term value creation for shareholders.

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