UniCredit S.p.A. ($UCG)

Good morning, and welcome to today's conference call. Please note that we will take questions exclusively from research analysts. I will now hand the call over to Mr. Andrea Orcel, Chief Executive Officer of UniCredit.

Thank you. Good morning, and thank you for joining us. Before I begin today's presentation, I would like to make clear UniCredit's position vis-à-vis our strategy Unlimited and how we're looking at Commerzbank. Our top priority and unmatched engine for value creation for the next 5 years is UniCredit Unlimited, and we will remain fully focused on its execution. There are 2 scenarios regarding our offer for Commerzbank. Scenario 1, remaining below control, which we can manage if we achieve a percentage that does not ensure returns above our cost of equity. In such scenario, UniCredit would probably remain below control for at least 12 months in order to fulfill its capital return commitment. Scenario 2, achieving control, with a percentage that ensures returns above our cost of equity. In scenario 1, we revert to status quo, a net return of over 20% with full upside and protection on the downside. Such risk-adjusted return cannot be beaten by any other option. In scenario 2, we would secure a strategically and industrially valid transaction, which returns exceed our cost of equity. Notwithstanding the significant value created by unlocked and an eventual combination, the return on investment for UniCredit shareholders is negatively impacted by the substantial incremental investment needed to bring Commerzbank to par, Commerzbank relative valuation now not supported by fundamentals and by the disproportionate capital consumption due to penalizing CRR rules in lower participation control scenarios. This constrained the premium payable. Both scenarios are a win for UniCredit. And in our opinion, Commerzbank shareholders with tenders. The outcome depends on the level of take-up, which influences together with further transparency from Commerzbank, potential offer revision. With that premise, as Commerzbank's largest shareholder, we have an interest in seeing it fulfill its potential and deserves its current valuation. In our view, it is not currently doing so. As a result, we're making public our view to show that Commerzbank can generate substantially more value than it does today and also that its current trajectory will put at risk its survival in the medium term. We hope that such views are incorporated into the upgraded guidance to be provided by Commerzbank on the 8th of May. As ever, in this situation, you will not be surprised that there is a disclaimer highlighted in the presentation to which I want to draw your attention. Also, our views have been developed outside in because as mentioned, Commerzbank did not engage with us in a meaningful way. The history of Commerzbank is a story of continued operating underperformance. This has long been true. But if we just look at the period from '21 to '24 and then '25, the bank lagged both UniCredit and the sector. Growth has been weak, investment in transformation limited and the core German franchise neglected. 2025 results have been propped up by temporary tailwinds and financial engineering. They were not underpinned by an improvement in core operating performance or necessary industrial transformation in Germany. Momentum simply offers more of the same. It does nothing to change the operating fundamentals as demonstrated by Germany's KPIs continuing to lag its peers in 2028. It runs from the hard work necessary to make the bank competitive in the long term and succeed in its core markets. Instead, it aggressively grows noncore, higher-risk international lending. It leaves Commerzbank in Germany vulnerable to an overdependency on risky bets that are not core to the business to changes in the macro environment because of the overreliance on financial tailwinds from replica with no room for error on cost of risk and to the challenges posed by U.S. entrants and fintechs in the increasingly competitive German market. More of the same means that further restructuring is inevitable as Commerzbank is increasingly left behind by a world that is changing around it, and that is not good enough for us. Recently, the share price has outpaced the sector, propped up by a significant valuation re-rating since the very day of UniCredit's investment, not supported by improved fundamentals. So today, we propose to change the story with a different approach that was successfully rolled out at UniCredit, unlocked presupposes a true industrial transformation. It is about cutting back on risky noncore international activities to invest in the core of Germany and Poland and its international expansion through trade finance. It is about restoring discipline by balancing the right growth with investment-led efficiency. It is about creating lines of defense to protect against uncertainty and error. And it is about investing in AI, technology, infrastructure and the critical front line to create a bank that's fit for the future. It is transformation, a transformation that has been successfully delivered at HVB, yielding a turnaround that has produced Germany most profitable and efficient bank. This requires hard work, determination and commitment, a choice not to do the easy thing, but the right one. Unlock would transform Commerzbank German operation, making them competitive and avoiding successive restructuring plan. It would also create the opportunity to combine 2 leading German banks, Commerzbank and HVB, into a strong competitive German leader, part of a leading federal pan-European group. This would generate significant incremental sustainable value upside for shareholders, clients and employees. So the choice is simple: continue on the current path of consistent underperformance or change the story with transformation, survive from plan to plan or build a bank fit for the future. More of the same with momentum means a neglected core, continued uncertainty and a short-term focus risking long-term success. Changing the story we've unlocked would mean a transformed future-ready, stronger bank, refocus on its core and delivering much better sustainable results. The comparison between 28 numbers for unlocked and Momentum speaks by itself. Net profit, EUR 5.1 billion versus EUR 4.5 billion. Return on tangible equity, 19% versus 15%; efficiency, 40% versus 47% and the divergence will become even greater into 2030 if nothing is done. More importantly, the numbers do not tell the whole story as unlocked would achieve these numbers while investing, addressing structural vulnerabilities, transforming and making Commerzbank capable to successfully compete and win in the future. Momentum does not. The story is even clearer when we focus on Germany as most of the necessary progress is there. Unlocked prioritizes this Germany core franchise and related international flows, driving growth, investment and employment at home. Unlocked aims to build a stronger competitive bank anchored in Germany with a focus on its Mittelstand and families, a bank with the ability to compete and win versus U.S. entrants and fintechs, delivering value for shareholders, clients, employees and the broader economy. It would put the talent, energy and passion of the people who serve Commerzbank today at the center, giving them the tool to succeed. A new chapter, a strong competitive bank, one no longer undergoing successive restructuring plans that don't address its core issues and an investment in Germany's economic future. Commerzbank is built around 2 valuable assets, an underperforming German business that is the mirror image of HVB and a leading Polish business that is well managed and provide a high-quality growth engine. In Germany, the comparison with HVB is pertinent. HVB is an independent self-standing German legal entity with a history similar to Commerzbank and with stand-alone revenues, costs and all KPIs that are fully visible. When we look at the performance of the 2 banks in Germany, the comparison is like-for-like. And beyond being comparable, the 2 franchises are highly complementary. Geographically, Commerzbank is more concentrated in Central Germany, while HVB is stronger in that area. In retail, Commerzbank is more focused on the mass market, while HVB is stronger in affluent, private and wealth. In the Mittelstand, Commerzbank is more focused on small to mid in the central areas of Germany and HVB on the mid- to large in the southern and northern parts of Germany. Given the fragmentation of the German banking market and this complementarity, the combined market share of the 2 institutions is no cause of concern. If we look back at the '21-'24 period, Commerzbank underperformed both UniCredit and the sector on all key industrial metrics, capital efficiency, operational efficiency and profitability. Germany was a drag with its gap to HVB and the sector widening. Commerzbank missed materially on cost and fees versus own Strategy 2024, while its revenue beat was due to interest rate tailwinds that propelled all banks rather than a genuine industrial step change. Not surprisingly, its 22% discounted valuation at the time to the sector reflected mismatch. During 2025, Commerzbank continued to underperform UniCredit and the sector across all critical KPIs. The apparent beat of momentum first year was, in our view, low quality. Another significant miss on cost in the very first year of momentum, more than compensated by lower-than-guided loan loss provisions, restructuring charges and a stronger NII mostly linked to replica and noncore international lending growth. So while the net profit headline may look acceptable and still underperform the sector, the underlying '21-'24 pattern repeated in 2025. Momentum implies continued underperformance into 2028, driven by Germany. The plan does not adequately address underlying structural vulnerabilities. Across key metrics, including capital efficiency, operational efficiency and profitability, a pattern clearly emerged, a meaningful lag to the sector and UniCredit persists and possibly widens. The business has only limited lines of defense in place to protect against near-term shocks, and we are no transformation action to make Commerzbank structurally competitive in the longer term. As such, under the current trajectory, the German franchise shall be even more vulnerable in 2028 with a significant probability of requiring yet another painful restructuring that may arrive too late. Let me highlight a few facts. First, half of momentum-based consensus revenue growth out to '28 is attributable to financial tailwinds and rates, which may be affected by current geopolitics, AI, the digital euro and increasing competition from new entrants and customer dissatisfaction in Germany. Second, loan growth outside core markets increases by nearly 25% whilst loans in Germany remained virtually flat. This is a 25:1 difference. Third, momentum-based consensus foresees Germany's cost/income ratio landing at 51% in '28 whilst HVB shall be at 32%. Fourth, momentum builds negligible visible lines of defense, leaving the bank exposed to changes in macro and error. Fifth, momentum does not increase investment in technology and AI nor does it foresee further restructuring charges to transform the business. Commerzbank is becoming increasingly unfit for a banking environment that is changing rapidly. Looking at valuation and share price performance, the day before UniCredit disclosed its first investment, Commerzbank traded at a 22% discount versus the sector on a 2-year forward price to earnings multiple, 22%. Such discount was due to Commerzbank underperformance across all KPIs and hence, aligned with fundamentals. Commerzbank has re-rated more than 20% versus the sector despite past and forward-looking lagging fundamentals since then. Most on the day, UniCredit investment was disclosed. I refer you to the graph on 11 September 2024. Even the stark reality, Commerzbank Unlocked represents our view of the need for a transformational long-term focused alternative but has even greater potential in case of a follow-on combination. In Unlocked Commerzbank stand-alone is aligned to a superior performance level of HVB, leveraging a blueprint that has already been successfully delivered and therefore, comes with very low execution risk. The combination with UniCredit is via an in-market merger between HVB and Commerzbank operation in Germany and in the international network. Poland becomes just another leading entity within UniCredit Group's federal model, able to fully leverage its advantages. Commerzbank Unlocked is centered around 3 connected pillars: refocus, optimize and upgrade. Refocus means putting Germany, its Mittelstand and families and Poland truly at the center while redesigning and de-risking the international network activities not related to supporting flows to and from Germany and Poland. Optimize means investing in people, the frontline, technology and AI adoption while targeting efficiency in noncore international network, senior overhead, operation and capital allocation while building lines of defense to protect the future. Upgrade means enhancing client journeys and providing more and better products while transforming the way of working through simplification, technology and AI. Unlocked includes what momentum does not, investment and protection, 1.7 billion of new investments and 500 million of additional loan loss provision, resulting in what we believe to be 800 million of additional pretax value achieved in a much more balanced, structural and sustainable way. A clear divergence emerges between Momentum and Unlocked across 3 critical KPIs: capital efficiency, operational efficiency and profitability with important implication for long-term value creation. On the Momentum, capital efficiency is primarily driven by external financial tailwinds and noncore international expansion, [indiscernible] at circa 25x the rate of Germany with limited linkage to Germany and Poland's direct business. Ambition and actionable levers to sustainably grow and transform the German franchise are absent, resulting in no structural safeguards to support future performance and eventually make the bank able to compete without yet another restructuring plan. In contrast, Unlocked would prioritize high-quality, sustainable growth, leveraging a transformation of Germany, Mittelstand and families and Poland. Noncore activities will be actively reduced to lower risk, enhance both operating and capital efficiency and free up resources to invest in the core. At the same time, the strategy would establish robust, durable foundation to protect and sustain future earnings and competitiveness. Momentum's approach to cost management lacks precision with the overall cost base continuing to expand and cost-to-income ratio remaining significantly above peer levels. Notably, further restructuring charges for '26-'28 to support further transformation are absent. Planned gross FTE reduction are concentrated in Germany, while international hiring persists with alleged golden parachute being granted there, limiting overall efficiency gain. Unlocked would take a more disciplined and structural approach to productivity. Efficiency improvement would be targeted and paired with reinvestment to support growth and future competitiveness, particularly in Germany. Approximately 60% of Unlocked cost savings would come from non-HR and noncore activities in the international network, so not in Germany, remaining 40% mainly from senior overhead, bureaucracy that is rampant and across the value chain. Both would fund significant necessary investment in people, including hiring of younger talent, infrastructure, technology and AI. From an earnings perspective, momentum remains highly reliant on favorable macroeconomic conditions and financial tailwinds, leaving performance exposed and the business insufficiently transformed to compete in the future. Unlocked by contrast, will structurally de-risk the earnings trajectory through comprehensive transformation and the establishment of strong operational and financial safeguards. This will result in more resilient, sustainable return through to 2030 and positions the bank as fully future-ready. In summary, Momentum depends on external conditions, noncore international growth and limited incremental change. Unlocked is underpinned by refocusing on Germany, structural improvement, improved resilience and sustainable value creation. The magnitude of the performance gap only partially underscore the difference between Unlocked and Momentum as Unlocked is aimed at the delivery of a fully transformed bank, future-ready bank while Momentum does not. What is also not fully clear is that Unlocked releases EUR 4 billion of capital by 2028 while Momentum does not. UniCredit Unlocked has already proven that it can successfully transform the bank while delivering sustainable best-in-class results, as you can see in the slide, but I will not comment further. What we have described so far is what we -- is what can be done by applying UniCredit's Unlocked blueprint to Commerzbank stand-alone. This would open a new chapter, but a true combination would completely rewrite the story. A combination of UniCredit and Commerzbank could send a clear signal, not just to Germany, where the merger of HVB and Commerzbank would create the country leader and benchmark, but also to Europe, building a federal pan-European group and a European benchmark for others to follow. This is the kind of institution that both Germany and Europe increasingly need, a stronger, more efficient and more profitable institution, better equipped to compete and lead in Germany and Europe. This institution would bring together 2 highly complementary geographic and client franchises and connect and fully empower Germany and Poland into a broader European network, generating significant cross-border value, an institution that would offer more and better products, upgraded channels, wider opportunities for people and greater investment firepower, an institution fit for the future, fit to compete and win against U.S. new entrant and fintechs alike. The combination that would generate additional pretax value to unlock value creation of around EUR 1.1 billion in 2030 and beyond, supported by accelerating quality growth while transforming the efficiency frontier, funding benefits, greater scale in procurement, product and infrastructure and a deeper integration of Germany and Poland into a truly pan-European federal network. We think that these synergies would require an additional EUR 1.6 billion pretax investment by 2030. 1 plus 1 clearly equals much more than 2. Both Commerzbank Unlocked and or a combination would blow Momentum's proposition out of the water. These numbers speak for themselves. In addition, we think that these figures represent an outstanding base floor that does not have the benefit of substantive discussion with Commerzbank and that may be revised after the revision of Commerzbank Momentum plan on May 8. Any upgrade to Commerzbank guidance driven by credible financial tailwinds should result in a parallel upward shift in both the Unlocked and combination outcomes because the proposed upside is structural, not conditional. Management has a fiduciary duty to act in the best interest of shareholders, just as we have a duty to deal with facts. So let me address some of the latest myth that have emerged about our views on Commerzbank and the entire situation. Assertion #1, there is no adequate premium. In reality, a meaning of premium is already embedded in Commerzbank increased valuation following UniCredit's investment. Furthermore, we made it clear that we would consider a review of our offer terms following serious detailed discussion with Commerzbank, which have not transpired. Assertion # 2, no value creation. Unlocked would blow Momentum out of the water in terms of value creation. As importantly, value creation would be sustainable and the basis for future growth, while it will not be so in the Momentum. Assertion 3, execution risk of an integration. Commerzbank would remain a stand-alone bank until 2028 at least, rolling out the well-tested Unlocked blueprint. Integration would follow only then. UniCredit has successfully executed more than 100 integrations, including Romania last year in under 9 months while increasing the number of active clients rather than decreasing them. Assertion #4, risk to commerce to customers. The franchises are complementary and the large majority of clients would benefit. Assertion #5, 15,000 job cuts. In fact, 60% of cost savings come from non-HR and noncore areas outside of Germany. Reduction in Germany would be less than half the one suggested, phased over several years, driven partly by natural attrition and offset by investment in people, technology and AI. Assertion #6, loss of German independence. Germany would become the #1 country in the group with circa 95% of decision taken locally and its independence further protected by German laws and regulation. Diving into detail on the final assertion, but the international network model cannot be improved and UniCredit's action would reduce support to the Mittelstand. In reality, UniCredit already commands double the trade finance business than Commerzbank. With best-in-class infrastructure, faster, more efficient, better service and lower risk, the combined platform would further enhance service and reach for Commerzbank clients. The activities that are currently being protected under the heading International Network have nothing to do with trade finance, but are related to aggressive growth of international and financial intermediary lending. Ultimately, the facts are simple as is the choice. Risk international lending unrelated to core activity or Germany and Poland as the priority. A top-heavy inefficient institution that does not invest or a lean, empowered organization that does. Uncertainty and upheaval or transformation to build a bank fit for the future. Short-term focus with medium- to long-term vulnerability or better short-term delivery leading to sustainable growth and profitability in the future. Less value creation or substantially more value creation. More of the same with Momentum or a new chapter for better winning Commerzbank, particularly in Germany. As I said at the start, UniCredit, its shareholders and those of Commerzbank who tender will win either way. I will now open for questions. Thank you.

[Operator Instructions] The first question is from Antonio Reale, Bank of America.

It's Antonio from Bank of America. When you launched the bid, the sale objective was to cross the 30% mark and basically break the stalemate. That granted you with a lot of optionality towards the path. And I mean, I think, the path that you have in mind is quite clear, but the time line by which you can get there can be quite different. At the start of the call, I think you've outlined some of the scenarios, and I'd like to follow up on those. So I think you've said that there hasn't been much engagement. We've seen the public version of the Commerzbank response to your offer. And today, you provided some numbers around the value creation, which I think is something that the Commerzbank side has been asking for. So my question here is, does the scenario of just crossing the 30% still hold? And what would you define a successful outcome? I ask you that also conscious of the different capital consumptions in each of the scenarios. That's my first question. My second question is out of the EUR 2 billion increase in pretax profit that you've talked about, more than 50% comes from the merger, and that's EUR 1.1 billion, if I understood right, and around EUR 0.8 billion would come from implementing Commerzbank Unlocked. I guess shareholders will assess the merits as to what can be achieved here by Commerzbank stand-alone or in general, with you running the combined entity, but what would you think a Commerzbank shareholders should factor in, in their decision here?

Okay. The first thing, just to be clear, we have offered to create a fully integrated working group to revise all these numbers in detail. And the headline numbers were provided during the engagement with Commerzbank. That offer has not been taken, and the views of Commerzbank have been made public. So we have always been open to provide all the numbers and all the support for reasons that I respect, Commerzbank has not wanted to do so. So let's be clear about that. Secondly, scenarios. In my view, I know there is a lot of complexity out there, but I would simplify it in this way, 2 big scenarios. One scenario, we remain below control. And one scenario, we've reached a level of control that allows us to truly manage the bank, to move gradually towards a combination and most importantly, to ensure to our shareholders, which are often disregarded in all the conversations that I have, a return on investment that is well above our cost of equity. And I remind everybody that many shareholders are ours, probably more than Commerzbank, and I cannot break that commitment and will not. So if we stay below control, the returns are practically similar. We will still equity consolidate. The returns will be well above 20%. They will be fully distributable. They will hit the equity investment line in revenues and equal the net income or net profit line in net profit, fully distributable. The percentage may go up slightly but not dramatically. So it's more of the same. Obviously, as in that scenario, we would then move back to our share buyback, which we have had to withdraw the application from the ECB just because in the middle of this merger or this proposal until there is clarity, it does not make any sense to continue with that. But the moment we're finished, share buyback and the capital return strategy that we have mapped would start in earnest. But if it starts in earnest, we will eliminate about EUR 4.75 billion of capital by the share buyback of 2025 that is being done this year. That effectively would put us in a position of not pursuing any action that puts us into control for a significant period of time. I would say, given the numbers I have today, minimum 12 months, maybe even 18 months. So in that scenario, we go back to status quo. We start again with our capital return strategy as is. We will accelerate as much as possible the share buyback of 2025. but we will stay away as we have -- we would have done all that we could to break the stalemate from achieving control of Commerzbank until such time that our capital ratio replenish to be able to do such a transaction. And at the moment, we estimate that will be 12 to 18 months, okay? Now in that scenario -- the second scenario is instead we achieve control at a percentage that allows us, given the capital consumption that goes with achieving control, to have return on the capital consumed that exceeds our cost of equity. That is a pillar of our commitment of M&A. We will not break that, and probably everybody knows that, including Commerzbank. So in that case, we would have returned well above our cost of equity, much lower than the 20% we have now on the financial participation, but we will execute an industrial and strategic move that will strengthen the group in the future. And at the end of the day, this is why we're here. So these are the two scenarios. One part of your question may be linked to what happened in penalizing scenarios where we do or we could achieve control. But because we are penalizing, i.e., it's controlled with a low participation, the returns are well below our cost of equity because the capital consumption is high. We will manage not to be in both scenario. And we have various levers that we can use to keep our voting participation below both scenarios and not go there. So that means that while crossing 30 will give us plenty of flexibility, we will behave in the way I have just described going forward. With respect to -- with respect to UniCredit shareholders, that means either we go back to the status quo, potentially, we have more flexibility on Commerzbank, but we park the issue for at least 12, 18 months based on what I think today. And we go back to our full-blown capital return and we go back to a fully visible without noise Momentum -- sorry, Unlimited strategy, which we are more and more convinced about. And hopefully, at some point, it will deliver the valuation that we deserve. If instead, we are in the other scenario, we still have the entire '26 independent. About half of '27 independent. And at the end of '27, when all authorization would reach, as you know, the process is very long in Europe. In the second quarter, then we would be getting control of Commerzbank. From that time on, Commerzbank would remain separate for about 18 months as it requires a lot of alignment, and we would not want to mess up with the merger before they are aligned. And after those 18 months, when fully aligned, we could consider a combination. But these are the time lines. With respect to the synergies, the 40 and the 60, so the 40 is not really a synergies. It is really running Commerzbank as we think it should and as we run our own banks. The 60 are the real synergies of this transaction. And by the way, I have heard many times the fact that we need banking union, as you all know, in Germany, this is an in-market merger of 2 complementary banks that have tried to come together for 25 years, okay, one side or the other. And outside of Germany and Germany get further synergies because as demonstrated with ALFA and with our other banks in the network, our federal pan-European group achieves revenue and cost synergies above and beyond what can be achieved domestically by being part of its aggregate, and you see it in our KPIs. So 40% does not include any of that. 60% is the synergies from BNMarket merger and all of that. I think that should answer your question, I think, but please let me know if I left anything else.

The next question is from Sofie Peterzens, Goldman Sachs.

Here is Sofie from Goldman Sachs. On Friday, there was an article in Bloomberg talking about ECB potentially imposing more onerous capital requirements for UniCredit for this Commerzbank transaction. Could you kind of discuss how your discussions with ECB have been and if there is any truth to this article? And also if you could remind us what the capital impacts are? Is it still around 200 basis points, assuming full control? And then my second question would be around the capital release that you discussed in the presentation around EUR 4 billion. Could you just outline a little bit more around the risk-weighted asset reductions that you see across the German operations but also the international network?

Okay. Sofie, Okay. I think with respect to control, let me answer it this way. There are 2 interpretation of control within Europe, depending on which market you're in. There is a strict interpretation. Control is 50 plus 1 share because with 50 plus 1 share, you go to the AGM and you fundamentally decide and can run the business day to day. There is another definition of control that I understand applies in Germany, which is a stake sufficient to structurally achieve control of the AGM of the AGM. And therefore, that second approach takes into consideration the number of shareholders that structurally are present and vote in the AGM. So if you have -- let me take a number. If you have 80% structural attendance to Commerzbank AGM, then it's 40 plus 1 share. If you have 90, it's 45. If you have, I don't know, 75, it's 37.5 plus 1. So you need to look at what is the structural level of people present in the AGM. And that analysis is complicated by the fact that what happens if UniCredit increased its participation, are we getting shares from the people that are not usually participating? Or are we getting shares from the people who are participating or from both? But therefore, you don't have a clear ironclad answer today. But I would say that if you look at the past, the number is in the 40% area, slightly above or slightly below depending which assumption you make, okay? So clearly, from an appropriate regulatory standpoint, what counts is control. Is there control or is there not control, like it counts for legal and for our accountants? But the way I would put it is that control is the ability to name the entirety of a non-workers' council related Supervisory Board of Commerzbank and then run Commerzbank day to day without any limitations, obviously, beyond the regulatory one and the minorities, et cetera. So I don't have a strict answer for you. It will be estimated, but that's where we are. Second, you asked for capital consumption. Capital consumption obviously changes, and it's an outside in because we don't have all the numbers. But it is circa 200 basis points at 100%. It is circa around the 50% area. It is circa 280. Now that number, so to be completely transparent, does not include [indiscernible], fair value adjustment, which you add on top. But as you know very well, Sofie, the fair value adjustment, you get back mechanically over a period of 4, 5 years, much front-loaded. So that is very manageable given the time line of the transaction. So these are the numbers. Why is it that lower percentages lead more capital consumption? I'm sure you know, but I will remind it for people who do not know because under capital requirement regulation in Europe, the excess capital to the regulatory minimum on minority interest cannot be counted in the capital ratio of the controlling shareholders. So if you have 50%, the 50% capital you do not own is calculated at minimum regulatory requirement as opposed to the real level of capital that exists, but you are consolidating all the RWAs, and that fundamentally generates the balance. That balance automatically goes down mechanically as you move up and reduce that minority interest inefficient capital deployment. So this is what we have. I think there was something else.

Yes. The second question was in relation to the capital release following the capital efficiency action that we are aiming at putting in place, that's something similar to what we have already implemented in Unlocked. So what we are looking at after the closing is releasing around EUR 33 billion of risk-weighted assets, primarily related to action related to assets that are in the corporate center, international network and the portion of the other assets that are EVA negative. All in all, it's slightly less than 20% of the total risk-weighted asset of the Commerzbank Group. There is also a part that can also be done via securitization. So the approach is absolutely similar to what we have already done and executed for UniCredit.

Please note that we will take questions from research analysts. So the next question is from Andrea Filtri, Mediobanca.

I hope you can hear me okay. The first question is basically, if we understood correctly then, the difference between the Unlocked UniCredit and the combination gives the synergies. So of the pretax profit, EUR 1.1 billion is with the synergies and EUR 0.8 billion is without. And the second question is, as you are engaged on this front, do you also foresee the possibility of being engaged on other fronts at the same time, given the duration of the period that this could keep you busy for?

Maybe your line is on mute. We cannot hear you.

Sorry, Andrea. So I said I was with my micro off. So the first thing is if I fully answer your second question, I would avoid all your speculations on your reports. So let me answer it that way. If we end up in scenario 2, scenario 2 is we get control at a level where we can truly run the bank, ensure a return on investment well above our cost of equity and move towards a gradual combination. If we were to be in that scenario because in the first scenario, there is nothing. We're back to status quo, so we are completely free. But if we are in the second scenario, as you correctly point out, two things happen. Number one, because of the intersection of European and German laws, we would not have all the authorization to move in until the second quarter of 2027, okay? So we closed second quarter -- we would close the offer second quarter of '26, 1 year after we get access. Secondly, we said very, very clearly that if we are in that scenario, we would keep Commerzbank completely distinct, separate, independent, while we would roll out an approach that is along the lines of Unlocked. And in order for us to get that done, we would need about 18 months, maybe 24. So it would make no sense for us to attempt any merger before that is done because it would just make the actual merger difficult because of a very different setup, culture and everything else of the 2 banks. And we do not want to create angst to HVB, which is working really, really well. So that would mean that the true integration or combination or merger work would start earliest, you're talking '29. What happens between '27 second half and '29 is a team executing Unlocked as we have executed for each one of 13 banks over the last 3 years. And I think while we executed one of those for the last 3 years, we were completely free to do other things because what people forget, we're federal. Every legal entity is self-supported and independent, has its own management team. And the only time where it touches group would be at a combination level because of what would happen in technology, in AI and in a number of other areas, but not until '29. So that should answer your question. The second one, Unlocked and combination. So the views on Unlocked, as you say, they do not have any synergies because by definition, Commerzbank is kept independent. This is something that we think the bank should do anyway for all shareholders, okay? Another thing is if it's capable of doing it, but the bank should do it anyway. The synergies, i.e., the merger synergies from combining HVB and Commerzbank, together with the group to single entity synergies that we have -- given the setup that we have as a federal group with central product factories, central technology, central procurement, et cetera, et cetera, et cetera, those come only in Phase 2, obviously, are additive to what you have in Unlocked and therefore, would only come at some point starting in '29. We believe at that point, it would be quite fast. Now I fully recognize that what we did in Romania is smaller. But what we did in Romania, we did it in 9 months, fully integrated top to bottom, including technology, AI and everything else. And while we did it, we increased the number of primary clients by going to clients with new products that they didn't have before, exactly like what happened at Commerzbank and new solutions and the rejuvenated set of tools for the network. So that part would be in '29 or from '29 onwards, we think that we could be done top to bottom. I mean if we want to take it wide because of the complication, a couple of years, but it could be less than that. So this is the overall time line and where you get the values.

Andrea, the additional investments are also cumulative, i.e., for a total amount of EUR 3.4 billion, around EUR 1.7 billion in Phase 1, so the deployment of Unlocked blueprint. And the second amount that is around EUR 1.6 billion is connected to the combination, meaning to the merger.

If there are no more questions...

The next question is from Delphine Lee JPMorgan.

The first one is just to go back a little bit to your discussions with Commerzbank. I mean, I guess, so far, they haven't generated much. But with this presentation, I mean, what do you expect -- what should we expect? Because you've talked about these numbers potentially having upside if you had those discussions. So just trying to think about the time line here. And then the second question is just on -- previously, you were talking about the potential for you could always revise the offer and offer higher premium, which doesn't look like it's a scenario right now even in your scenario of control. Just trying to think a little bit about sort of -- is that the case? And why would you think Commerzbank today tender more shares if the premium is not here?

Okay. So first of all, the fact that we're disclosing our views today was flagged very clearly to Commerzbank. And the reason why we're doing it is because having failed to work together and together develop a joint proposal or at least trying to develop a joint proposal, we have an offer that starts on May 5. We have an offer document. The offer document contains these numbers whereas Commerzbank knows. And therefore, we are in a position where we need to explain our views, and that's what we're doing. So there was no more time to wait, especially because the door was shut just after Easter. And therefore, we thought that the most constructive way of going forward was to come out with these views publicly to all shareholders, allowing as much time as possible for Commerzbank to react to them and potentially incorporate them or respond to them in their May 8 presentation. So this is directed to providing them with time. Ultimately, and I want to underscore it again, the better Commerzbank does, the better we do because we have 30% fully hedged, but with full upside potential. And if they do well and earn their valuation, then our shareholders will do well, increasingly well, and it will hit our bottom line and it will hit our distribution. So this is why we are where we are. What will happen to discussion? Honestly, I cannot speculate. To be clear, I think we did everything we could and more over the last 18-plus months to try and have a meaningful interaction with 2 sides constructively around the table building something together that they can both stand on or at least agree to disagree based on facts and numbers and not on superficial statements. But we have not been able to do so. So we had no other option than to put outside-in views, which by their very definition, make assumptions and whether the assumption may be correct or not correct. So we will be happy to correct what needs to be corrected if those assumptions are proven to be incorrect. So I don't know what will happen, to be honest. The second point that I would like to be clear because we've had a number of discussions with many of you. If I were to look only at financial returns, there is no question that the best win is to remain where we are or just above 30% for two reasons: one, because in any case, the return of that participation yields a lot more. We have 100 basis points of capital, generating some EUR 700 million, EUR 800 million of net profit after the cost of put options, after, and going up if Commerzbank does better and if it goes down, the put option go in the money and we are protected. There is no beating that ever. Second reason for that scenario being a win is just a conviction. We are fully convinced that we will deliver unlimited in the same way we delivered Unlocked and then more. And we are instead much more concerned as to whether Commerzbank will deliver a sustainable path in '28 and beyond. Of course, to '28, we've replicated everything, they may reach the plan if the environment doesn't change very much, but what is there afterwards. So we think that if anything, over time, the relative valuation and the base for that valuation, i.e., the net profit line will move in our favor. And when I say medium term, I say 2 years, 3 years, not immediately, when it will be clear. In any case, we do not think it's going to get worse. So if I take it truly opportunistically and financially, scenario 1 beats and trumps everything every time. However, we are also here to run institution and to do what is strategically and industrial right. And while less attractive financially, the scenario 2 can work because it beats the returns of buying back our own shares. And therefore, at the appropriate condition, if it beats those returns, we will go for what is strategically and industrially right. Now premium. As I said, Commerzbank used to run at a 22% discount to the sector, 22%. Today, that is 2 years P forward, '24, '26 and now '26, '28. Now they are trading at a 0 discount to the sector. No other bank that comes from restructuring and underperformance is re-rated that fast. To give you an example, we're not re-rated that fast, and we come from 21 successive quarters of beating our own estimates, okay? So we believe that, that is solely due or mostly due, let me rephrase it, to M&A speculation. If you look at net profit performance in '25 or trend line to '28, there is nothing there that should drive re-rating, re-rating valuation. So we believe that, that at some point will adjust, okay? And we believe that the premium is already in there. So if you take it that way, there is a large majority of that 22% re-rating, including the 5% premium we offered in our offer is due to that, not to underlying performance. So now the premium can it be reviewed? I was very, very clear that there are 2 scenarios. One, we get below control, one and the other, we get to a level of control where we can absorb the, let's say, disproportionate capital consumption due to European CRR rules and that may be something above 50. So if you -- there are 2 scenarios. One scenario is we expect low take-up, we're happy. Financially, we win, we sit back and probably people will thank us in 2 years because we may do a transaction better. Scenario 2, we have a high take-up and therefore, we move with a more strategic and industrial. The high take-up is driven by two things: one, a constructive engagement with Commerzbank that, a, clarifies a number of questions that we have where we may or may not have been too negative; and two -- but obviously, a joint plan is much more likely to drive take-up than no plan, no joint plan or alternative, what can drive high takeup is shareholders independently doing their numbers, reaching their conclusion and concluding it is in their best interest to tender because if they tender and we remain in the financial scenario, they still will have a better exposure to Commerzbank with a better yield. And within 12 months, if we do any change, they will benefit from those change. And there is much more liquidity in this environment, lines of defense and a number of things that I don't have to explain you. Or they decide, no, I want to write it. Let me take the next 2 years, 3 years, I want to write it because I believe that this is the best case. Both positions are defensible. We have put them to shareholders. Shareholders will decide, and that's what it is. But for us to review the premium mildly, so don't jump ahead because if any of you does the numbers, you know with 260, 280 basis points of capital consumption to increase the premium mildly, we would need to understand that the take-up is very high. And at the moment, there is no indication that it will be. I hope I have been clear.

The next question is from Ignacio Ulargui, BNP Paribas.

I have two questions. One is coming back to the capital release, the EUR 4 billion that you were mentioning. Should we understand that, that capital is then reinvested in the bank as part of the Phase 2 kind of combination situation? Or there will be different uses for the EUR 4 billion of capital releases? And the second one, looking to the potential implications for mBank, which you haven't looked much into the presentation, but just wanted to get a bit of a sense whether any potential takeover on mBank required by the change in control in Commerzbank is taken into account in the capital impact?

So I'll take mBank and Stefano will take the rest. So mBank is clear. Poland is a country where control ships at 50 plus 1, okay? And we are in discussion with the KNF in terms of what would happen if it would happen. As I said, we have levers to keep ourselves in a situation where we are not -- we don't drop into a situation where we have excessive capital consumption and a cascade offer in cash that are penalizing. We have looked at that. And at the moment, we are quite confident we can manage around it. But as I said, Germany control when you have control of the AGM, Poland control when you're at 50 plus 1. You can look at what Erste did in Poland recently, and it's predicated on that. But that said, it fully depends on the local regulators and authorities, and we will be -- we are discussing with them, and we will see what the outcome is.

In relation to the first question, the capital efficiency outcome is such around EUR 33 billion, so equivalent to EUR 4 billion that we believe that notwithstanding the perspective of growth for Commerzbank perimeter in the next 4 years, let's say, 4 to 5 years, taking consideration the type of model, with increased profitability and increased level of capital generation, there is no need of utilizing a meaningful amount of such inefficiency. So such an efficiency is available for distributions.

The next question is from Noemi Peruch of Morgan Stanley.

So I have one question and a clarification. So if I understand correctly, the 2 scenarios are not really mutually exclusive if we think about the next 12 months. And in this context, I was wondering how you see the 2027 Commerzbank AGM and if you already decided the role you are going to play there. And the clarification is on the 280 bps of common equity absorption. Are you assuming you're getting to 50% in cash or in shares?

Okay. So if I understood correctly, our participation in Commerzbank AGM, we haven't taken final decisions. But for the time being, as you have seen, we've been respectful of Commerzbank we have not participated. And the view has been either we are in and we manage it or we are not. And I think that's healthy, and we like it that way. With respect -- and therefore, that's what it is. With respect to what we're envisaging at the moment, it's anything that we have -- we are buying is in shares.

The next question is from Britta Schmidt, Autonomous Research.

With regards to the likely contentious points in discussion with Commerzbank, with regards to the cost/income ratio, what gives you the confidence that a more retail-heavy German banking business can substantially approach the cost/income ratio that HVB has? I think you're suggesting 37% versus 32% at HVB. And then with regards to the EUR 33 billion RWA savings, you point to the center and also the international business. What sort of analysis is behind that? And how would you intend to deal with the Commerzbank argument that the international business is core to their SME franchise? And then just lastly, in general, if Commerzbank was to engage, do you already have an idea of where you could potentially see additional upside?

So I'll pass to Stefano, but I would make the general comment. The targets for efficiency are very much adjusted for the fact that Commerzbank has more retail in inverted commerce than we do. I think we are at 80-20 retail corporates, and they are 65-35 or 60-40. So if you look at the cost/income ratio target, it will still be substantially higher than HVB in '28. So it is adjusted for that as we have differentiated between the two. The second thing that I would like to highlight is we believe that there is a disproportionate amount of non-HR-related costs that Commerzbank embeds, which is why 40% of all reduction are non-HR cost. And we have experienced that already at HVB given how German banks are usually structured vis-à-vis those of other countries. We have a very center that then drives a number of our costs related to it. So while here we have given our views, let's say, to provide you some guidance, we have granular detail behind them. And especially with respect to Germany, we are highly confident. And when I say highly confident, highly confident. But Stefano.

Yes. On the capital efficiency, as highlighted before, it's not just the international network. So the focus will be on assets that are in the corporate center, in the international network, but as done in multiple locations in UniCredit also in the ordinary activities that Compass is running in Germany. So Per, as highlighted before by Andrea, the capital efficiency action are not going to impact the service, meaning trade finance and correspondent banking service towards the franchise and towards the clients. It specifically target to EVA negative or not sufficiently positive lending-based transaction, not with the core of the services connected to neither trade finance nor correspondent banking.

The next question is from Giovanni Razzoli, Deutsche Bank.

My question has already been answered.

The next question is from Andrew Coombs, Citi.

Just a couple of numbers ones. Firstly, on the EUR 1.3 billion of cost saves, can you just give the time frame for recognition of those saves front-loaded versus backloaded? And what the upfront cost-to-achieve charge would be in order to derive those saves? And then second question on the revenues. If I look at the revenues that you have under your plan, it's EUR 13.6 billion. The existing Commerzbank stand-alone plan is EUR 13.4 billion. Within your plan, you're including EUR 650 million of attrition from the international network. So can you just explain the delta? Where does the incremental EUR 850 million come from? Where is the benefit? You outlined EUR 200 million from leveraging the UniCredit product functions, but just keen to understand where that's coming from.

Yes. So cost-wise, the in between Phase 1 and Phase 2. So the overall cost efficiency in relation to Phase 1 around EUR 1.3 billion of cost efficiency. Connected to that, there are overall investment of EUR 1.7 billion, while in Phase 2, meaning with the combination of the 2 legal entity, meaning the merger of the 2 legal entity, we are assuming to have cost efficiency of around EUR 800 million. In such a phase, as highlighted before, if we take in consideration the overall amount of investments, including also the IT-related one and connected one-off, the overall investment will be around EUR 1.6 billion. In the Phase 1, the non-HR component of the efficiency is around slightly more than 40%. The HR component is slightly less than 60% with a clear focus on, let's say, international network and all the non-client-facing activity of head office, for example. With regards to the revenue component of the equation, on the revenue component of the equation in Phase 1, we are currently assuming an impact deriving from the capital efficiency of around EUR 650 million, while we're assuming to have a positive revenue-generative initiative of around EUR 200 million, slightly less than that. A portion of that is connected to Poland. because we believe that with the franchise of UniCredit, we can generate higher revenues as happened with AF as well, for example. Another portion is connected to Germany because we do believe that further strengthening the product offer is possible to have further revenue growth also in Phase 1 in Germany. We are also assuming to have a revenue-driven initiative in the second phase, meaning following the combination. All in all, the amount that we are assuming is similar, slightly higher than the one that we have in Phase 1.

I guess to just rephrase it for your revenue guide that you're providing the 13.6, that's using the consensus 14 as the baseline and then do the adjustments on that as opposed to using the stand-alone Commerzbank target of 13.4.

It's correct. What we are starting from is the consensus number. And then we are adding all the figures that we highlighted during this conference to the consensus number of 2028. Clearly, if there will be movement in the plan and in the consensus, we can fundamentally have a sort of parallel shift in the sense that all the actions that we have described can be implemented also if there is an improvement in the plan, in the Momentum plan or in the consensus deriving from tangible action or tailwinds, for example, financial tailwinds.

The last question is from Andrea Lisi, Equita.

I have two, one on the numbers and the other on the strategy. The first on numbers, if you can help me reconciling the EUR 2 billion of GOP of value that you can you think you can create from the integration of Commerzbank. In particular, looking at Slide 3, I'm not fully able to reconcile the numbers with this EUR 2 billion in the sense that we have the consensus base number with net profit 2028 of EUR 4.5 billion, the direction of 2030 of EUR 6 billion. There, I think that you have the Unlocked plan. Clearly, we are comparing to 2028 to 2030. So let's assume Commerzbank stand-alone arrived at EUR 5 billion, so it's EUR 1 billion of net profit directional. Then if you combine the 2 entities, EUR 6 billion plus the EUR 15 billion you have indicated in your stand-alone plan or ambitions, we get to the EUR 21 billion. So I don't see the synergies there. In case, I don't and not able to reconcile with the EUR 2 billion you have indicated gross. Clearly, here are net, but still seems lower. And at the same time, I want to ask you if in the numbers, you have also included the fact that currently, you are not -- you are paying on the hedging of the stake in Commerzbank and if you combine the 2 entities, clearly, there is no more need for that. The second is on the strategy in the sense that in the past, but also in this call, it seems that in case you reach a stake close to 30%, you would remain in Commerz still with the stake. But do you think this approach could change if there is any kind of acceleration in consolidation in Italy? And yes.

Yes. In relation to the first question, your calculations are correct. So if we start from UniCredit, so for UniCredit effectively, when we're looking to 2030, the ambition is around 15. Important elements to be included are, on one hand, in the assumption of the consolidation, we will include the full numbers of [indiscernible] of Commerzbank plus the value creation of Phase 1 and Phase 2, but we need to remove the current contribution of the stakes that also Andrea mentioned before that is currently ranging between EUR 700 million and EUR 800 million, so during the period '27, '28, but can be even higher for the future. So this difference is explaining to you why when we are summing up all the effect and when you look to the full group numbers, we will have around EUR 21 billion because we need to, let's say, on one hand, increase the positive effect deriving from Phase 1 and Phase 2, plus the growth in '29 and 2030 deriving from both UniCredit and Commerzbank. In the case of Commerzbank, it's around EUR 1 billion, as you have highlighted, but it's important that you exclude the contribution of the stakes currently embedded in UniCredit Unlimited.

So rough cut, 2030, EUR 1 billion net goes away because we lose the equity consolidation on one side, and we add a line-by-line consolidation on the other. So that's why the 2 numbers seem not to connect because in Unlocked, it's not the case. But in the combination, it is. I hope that's clear. With respect to strategy, well, clearly, if we -- as I said before, if we are in scenario 1, scenario 1 has also the advantage that we are free and clear from anything else because we come back to status quo. Scenario 2 depends. We will see. But I would say, for the moment, we are very focused, first and foremost, on delivering Unlimited for you and secondly, on seeing where this takes us on Commerzbank. So also for us, closing a chapter one way or the other, at least for now, is quite important to be able to recover our full flexibility in every direction. I think this was the last question. So thank you very much for reacting at such short notice and for some of you in London quite early. Thank you, and we'll see you all on our results Day on the 5th of May. Thank you very much. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.