RBC Downgrades Commerzbank on Execution Risks from UniCredit's Takeover Plans

RBC Capital Markets has downgraded Commerzbank, citing heightened execution risks and a less certain earnings outlook following Italian lender UniCredit's plans to assume control. The brokerage lowered its rating on the German bank to 'sector perform' from 'outperform' on Friday, reflecting concerns about the path ahead.

Downgrade Details

In a note to clients, RBC cut its price target for Commerzbank to €40 from a previous €43. The analysts also raised their cost-of-equity assumption to 12% from 11%, a move indicating that investors may demand a higher return to compensate for greater perceived risk.

The downgrade is directly linked to UniCredit's strategy after securing 49.65% of Commerzbank’s voting rights. UniCredit plans to take control from Jan. 1, 2027, pending an expected approval from the European Central Bank. RBC questioned whether UniCredit's assumptions on cost savings and restructuring would be achieved once it gains full access to the bank.

A Two-Phase Strategy

RBC's analysis outlines a potential two-phase transformation for Commerzbank under UniCredit's influence. The initial 'Unlocked' phase assumes Commerzbank undergoes a major restructuring while remaining a standalone entity. Key estimates for this phase include:

• Restructuring costs of €2.2 billion
• Cost savings of €1.4 billion
• Lost revenue of €650 million
• A plan to release €4 billion of capital

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While these measures could boost RBC's 2030 earnings per share estimate by 7%, the brokerage also cut its forecast for 2027 shareholder distributions.

A later phase, which RBC calls 'New Chapter,' could involve Commerzbank acquiring UniCredit’s German subsidiary, HVB. RBC estimates this deal could be valued at €25 billion and generate an 11% return on investment by 2030.

Market Implications and Risks

RBC expects Commerzbank would fund the potential HVB acquisition with shares, a move that would increase UniCredit’s stake to between 67% and 70%. Combined with the German government's 8% holding, this would significantly reduce the bank's free-floating shares available to the public.

This concentration of ownership could threaten Commerzbank's inclusion in major equity indexes such as Germany's DAX, which could in turn pressure the stock price as index-tracking funds would be forced to sell. The brokerage also noted a deal could trigger a mandatory offer for minority shareholders in UniCredit's Polish subsidiary, mBank.