Commerzbank share price exploded higher on Tuesday and reached its highest level since April 2011. It is one of the best-performing DAX Index constituents after almost doubling this year. This surge has brought its market cap to over €35 billion.
Unicredit boosts Commerzbank stake
Commerzbank’s stock price has performed well this year, partly due to ongoing speculation about a takeover by Unicredit, one of Italy’s largest banks.
Speculation of a takeover increased this week after Unicredit acquired more Unicredit shares. It also intends to convert the remaining synthetic position to boost its shareholding to 29%.
The stock surge is likely a sign that investors anticipate Unicredit to announce a full acquisition of the lender. However, this deal has received opposition by German politicians because of its significance as the second-biggest bank in the country after Deutsche Bank.
Unicredit’s Andrea Orcel has also hinted that he will be patient in making the deal as Commerzbank has become more expensive. Its market value has jumped to €35 billion, while Unicredit’s valuation rose to over €91 billion.
Unicredit hopes that acquiring Commerzbank will help to create a major European banking champion. Commerzbank has over €400 billion in assets, while Unicedit has over €815 billion.
The two banks will have over €1.25 trillion, making it one of the top European banks after the likes of HSBC, UBS, Credit Agricole, Santander, and Barclays.
Read more: Commerzbank shares surge 17.5% as UniCredit buys 4.5% stake from German government
Strong financial results
The most recent results showed that Commerzbank’s business was doing well even as the German economy faced growth challenges. Its results showed that the revenues jumped by 11.8% in the first quarter to €3.07 billion.
This growth resulted in a net increase of €834 million, representing a 11.7% rise. The Return on Tangible Equity (RoTE) rose to 11.1%.
Commerzbank has one of the best balance sheets in the European banking sector, which allows it to continue rewarding investors. It ended the last quarter with a CET1 ratio of 15.1%, higher than Deutsche Bank’s 13.6% and Lloyd’s Bank’s 13.5%. Unicredit ended last quarter with a strong ratio of 16.1%.
In addition to its CET1 ratio, the company has a low cost-income ratio, helped by the management’s cost-cutting initiatives. Unicredit’s ratio is even better, coming at 35.4% in the first quarter, while Deutsche Bank has 65%.
Most importantly, the results showed that its net interest income was holing well even as interest rates dropped. Its NII came in at €2,07 billion, down from €2.12 billion in the same period last year. This decline was offset by an increase in the net commission income, which jumped to €1.01 billion.
These numbers have pushed the company to reward its shareholders. As a result, the firm decided to distribute 71% of its net profit. It did that by increasing its dividend and share buybacks. It now has a dividend yield of about 2%.
Commerzbank share price analysis
The daily chart shows that the Commerzbank stock price has been in a strong uptrend this year, reaching a multi-year high of €30. It recently crossed the important resistance level at €29, invalidating the forming double-top pattern.
The stock remains above all moving averages, while the Relative Strength Index (RSI) and the MACD continue to rise.
Therefore, the stock will likely continue rising as bulls target the key resistance level at €35. A drop below the support at €29 will invalidate the bullish view.
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