"Hopefully, we will continue to deliver on the goals of our plan and make the skeptics lose a lot of money," the former Merrill Lynch and Ubs banker said in addressing the market on the next quarterly earnings call.

Investors who bet on the investment banker buying UniCredit shares upon his arrival in the Gae Aulenti towers in April 2021 pocketed a 190 percent return on the stock, as well as 9 billion in buybacks and, to a smaller extent, in dividends. At least another 6.5 billion is coming on 2023.

"An institutional investor such as Cariverona cannot but reiterate its complete satisfaction with the managerial action of Dr. Orcel, whose call to lead the group was hoped for three years ago," commented Alessadro Mazzucco, president of the Veronese foundation.

In the two and a half years since his arrival at UniCredit, Orcel has revolutionized its business by ensuring an organic generation of capital that sees excess equity accumulate despite a very generous distribution policy.

More difficult to achieve so far has proved his aspiration to permanently enshrine UniCredit as the "bank of Europe," despite the fact that the CEO has, by his own admission, the richest coffer of all European banks.

With more than 30 years of industry experience and a role on major European banking deals, Orcel has set the bar very high for possible M&A in the fragmented eurozone capital market.

Maximizing the return on allocated capital, Orcel has used cash to buy back UniCredit shares, pushing the total shareholder return up and setting the conditions for considering bolder moves, including a 'transformative' merger.

"It will probably be the champion of consolidation in the European banking sector," said Cole Smead, Ceo of Smead Capital Management, whose International Value Fund, with a total value of $105 million, is more than 7 percent made up of investments in UniCredit.

Each deal must meet three criteria: congruence from a business perspective and a push for earnings per share such that investors' returns are safeguarded.

For this he wants a return on investment of at least 15-20%, said a person familiar with the matter, without specifying the time frame.

ALPHA

The first international deal came last month, after the snub inflicted on the Treasury in 2021 on Monte dei Paschi di Siena and the failed move on Banco Bpm in 2022 caused by a leak and then the war in Ukraine.

UniCredit acquired a 9 percent stake in Greek Alpha Bank by signing a business partnership agreement with the Athenian lender as part of a deal that also brought UniCredit most of Alpha's business in Romania.

"The deal with Alpha fits perfectly into the strategy that Orcel presented to investors," Smead explains. "Basically, he bought a 10 percent return on equity, similar to UniCredit's, at half the book value, i.e., for a lower price than his own bank. Brilliant."

By buying and then writing off UniCredit securities, Orcel raised their price to nearly 70 percent of book value, from the initial 30 percent, securing hard currency to pay, in whole or in part, in shares for a possible takeover.

Commerzbank, historic forbidden fruit for UniCredit, which operates in Germany through HVB, trades at 40 percent of book value. The German bank is more than 15 percent owned by the state.

Previous CEO Jean Pierre Mustier's aims foundered over Berlin's opposition. A larger Alpha deal in countries with higher credit standing than Italy remains a challenge.

The small M&A team supporting Orcel has been studying in detail all possible deals in markets and businesses of interest to the bank so that a quick move could be made if the stars aligned, according to sources familiar with the situation.

But the regulatory framework in the eurozone, where progress toward a single banking market has stalled, complicates cross-border deals.

UNFIT FOR PURPOSE

Orcel pointed a finger at the European capital market, calling it "unfit for purpose," adding that banks need a banking union to compete with U.S. rivals and adequately finance the Old Continent's economy. A message also reiterated recently by the CEO of Intesa Sanpaolo.

The close bank-state relationship, the international aims of Italian institutions find an obstacle in the public debt, second only to that of Greece as a percentage of GDP acirca 140% and with a rating close to the limits of investment-grade.

Orcel, who has made it clear he cannot "keep excess capital in a water bath," has pledged to propose extraordinary buybacks next year if he cannot find better ways to spend the more than 10 billion he has accumulated.

Calling on the rest of Europe to follow suit, Orcel said he had unlocked UniCredit's potential by giving the bank a unified strategy in all 13 markets where it operates. While maintaining Mustier's ruthless account discipline, Orcel has reversed its centralizing approach, hiring thousands of staff in branches emptied by the exodus and increasing the credit resolution powers of customer-facing staff, among other things, while strengthening controls and risk guidelines.

Orcel's focus, however, is not on net interest income, whose relative weight on operating income the CEO aims to reduce by increasing net fees.

The former head of investment banking at Ubs has hired figures capable of revitalizing the bank's advisory and capital market activities, as well as beginning to rebuild internal asset management capabilities, which the bank had given up with the sale of Pioneer. "Orcel has breathed new life into the bank: the numbers are outstanding, it really generates a lot of cash, and the buybacks are rolling in," said Carlo Franchini, who runs Banca Ifigest'sproprietary desk.

"No doubt it could play a consolidator role."

Investors, however, remain skeptical about the sector, as evidenced by multiples on earnings at a discount both in historical comparisons and with the rest of the market, despite a slew of upgrades on earnings per share thanks to the rate boost.

And in the case of UniCredit, analysts also point out that the funds holding the bank's capital, many of them speculative in nature, are often just waiting for an excuse to monetize the stock's formidable rise.Contributed by Danilo Masoni

(Translated by Luca Fratangelo, editing Stefano Bernabei)