By Valentina Za and Tom Sims
MILAN/FRANKFURT (Reuters) -Italy's UniCredit beat third-quarter forecasts on Wednesday and lifted its profit outlook as its CEO talked up his possible deal with Commerzbank (ETR:CBKG), which said its own growth plan meant to fend off a takeover was working.
The banks' financial results are the first since Italy's No. 2 bank disclosed in September it had snapped up a significant stake in Germany's Commerzbank and began pressing for a possible tie-up.
Commerzbank has been honing its defence since and on Wednesday raised some of its own financial targets as it seeks to avoid what would be one of the largest European banking deals since the global financial crisis.
CEO Bettina Orlopp said on Wednesday that UniCredit had requested another round of talks, while UniCredit CEO Andrea Orcel told analysts a decision on any full takeover would take time but should come within a year.
In third-quarter results, both banks sought to underline their financial strength.
UniCredit, which is now awaiting supervisory approval to become the main investor in Commerzbank, said it aimed to replicate in 2025 and 2026 a recently raised 2024 profit goal of more than 9 billion euros ($10 billion) after its third-quarter profit beat forecasts.
From next year it will start paying out half its net income to investors in cash, up from 40%.
UniCredit's move for Commerzbank has sparked widespread opposition in Germany and marks a major test for Europe's willingness to see through long-awaited cross-border banking consolidation.
The Italian bank said on Wednesday its German business was a "mirror image" of Commerzbank and UniCredit Germany's better performance in recent years showed what could be achieved if it were allowed to combine.
Addressing concerns that a merged bank would take decision-making away from Germany, Orcel said it would be run by a "fully empowered German legal entity".
"UniCredit has invested in Commerzbank because we believe it can be a much better and stronger bank, particularly in and for Germany," Orcel told analysts.
He also refused to rule out an unsolicited takeover bid, saying that "hostility" was "a matter of...definition".
UniCredit does not need to wait for the European Central Bank to clear its request to raise its stake in Commerzbank to 21% before launching a full takeover offer because that approval process would be separate, Orcel said.
Shares in UniCredit dropped 1.3% after initially rising, underperforming gains seen across banking stocks fuelled by Donald Trump winning the U.S. presidential election. Commerzbank shares fell 2.3%.
Analysts at KBW described UniCredit's results as a "strong beat" that continued to justify their "outperform" rating despite the shares beating the STOXX Europe 600 Banks index by 5% over the last month.
Commerzbank reported a net profit fall of 6.2% to 642 million euros, better than analysts on average had expected but dragged down by a decline in interest income and a rise in risk provisions.
Nevertheless, the bank raised its outlook for net interest income to 8.2 billion euros from 8.1 billion for the full year and raised its commission income guidance to more than 5% growth from an earlier forecast of 4%.
"This shows that our growth initiatives are increasingly paying off, thanks to the very consistent implementation of our strategy," Orlopp said.
Orcel says UniCredit is willing to walk away from a possible deal with Commerzbank and would only pursue one if it did not hurt shareholders in the Milan-based bank.
($1 = 0.9299 euros)