MILAN (Reuters) - Italy's second-biggest bank UniCredit lifted its 2025 outlook on Monday after posting a surprise increase in quarterly profit but remained resolute that it would not do deals at any cost.

CEO Andrea Orcel has placed UniCredit at the heart of the consolidation wave sweeping Italian finance, with a 14 billion euro ($16 billion) all-share offer for rival Banco BPM and a 6.7% stake in insurer Generali, which UniCredit has said is a financial investment, the same as its 28% stake in Commerzbank.

However, the offer for BPM hangs in the balance after Rome imposed strict conditions to clear it, which UniCredit said could be harmful to the bank.

Plans for a Commerzbank takeover also face strong opposition from the new German government and the strategy over Generali remains unclear.

UniCredit said dealmaking provided "interesting possibilities" but it would only pursue them if they improved the bank's "unmatched" prospects as a standalone entity.

UniCredit said fee and trading income, as well as lower costs, drove an 8% rise in net profit to 2.77 billion euros ($3.14 billion) during the January-March period, above a 2.36 billion euro average analyst consensus provided by the bank.

It said it now expected its 2025 net profit to surpass 9.3 billion euros, above last year's result net of tax credits, when it had previously said it would broadly match it.

Orcel said in a statement that UniCredit was confident it could improve its profit and distribution guidance for 2025.

UniCredit shares rose 4% in early trade, outperforming a 3% rise in Italy's banking index.

Orcel, the former UBS investment banking chief, has used the record profits fuelled by higher interest rates to boost investor payouts and drive UniCredit's share price higher, building a strong currency for M&A deals.

However, the clashes with the Italian and German governments, which are hampering his M&A strategy, have raised some concerns within UniCredit's board, sources told Reuters last week.

UniCredit, which had been restructuring under Orcel's predecessor and has continued to slash costs, announced on Monday a 10-year partnership with Google Cloud.

Italy's biggest bank Intesa Sanpaolo agreed a similar partnership in 2020 as lenders globally move away from legacy IT systems towards cloud-based digital infrastructure.

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