Germany's Commerzbank promises better returns after UniCredit bid

Commerzbank is setting itself higher profitability targets in its battle with the Italian bank UniCredit, which is pursuing a growing stake in the German lender.

Commerzbank on Thursday announced plans to increase the return on equity for investors by more than 12% by 2027, higher than previously planned. The bank's return on equity in 2023 was about 8%.

The bank said it also plans to distribute more profit to shareholders.

A first meeting between Commerzbank executives and Unicredit representatives is planned for this Friday, incoming Commerzbank chief executive Bettina Orlopp said at an industry conference in London.

Commerzbank is under pressure to offer its shareholders more attractive prospects to fend off the Italian bank's potential takeover bid.

UniCredit recently moved to buy 21% of the shares in Commerzbank, which would make the Italian bank by far the largest shareholder in Commerzbank, ahead of the German government, which holds around 12%.

UniCredit also applied for permission to increase its stake to up to 29.9%.

Commerzbank has "considerable potential for growth and value enhancement," said Jens Weidmann, chairman of Commerzbank's supervisory board. He said the bank is expanding its independent position as a strong pillar in the German banking market and a reliable partner for domestic businesses.

Orlopp, meanwhile, sought to stress Commerzbank's unique understanding and close relationship with the small and midsized companies that are often see as the bedrock of the German economy.

The bank said it expects net profit to increase to well over €3 billion ($3.3 billion) in 2027.

By comparison, Commerzbank reported record net profits of €2.2 billion in 2023, as the entire banking sector benefits from higher interest rates. However, with central banks cutting key interest rates, the outlook for the sector is generally considered gloomier.

For the years 2025 to 2027, Commerzbank said it now plans to return more than 90% of its profits to investors directly through dividends or via share buybacks. That's a significant increase over recently announced plans.

Orlopp, who will take over leadership of the bank at the end of the month, said there is also additional earnings potential in certain business areas, including corporate banking, asset management and at the Polish subsidiary, mBank.

Orlopp, however, said the bank would remain cost-conscious and would not pursue acquisitions that entail extensive integration work.

Commerzbank is now forecasting revenue of €13.3 billion in 2027, compared to €10.9 billion this year.