*

Net fees, trading income offset net interest income drop

*

Improves profit outlook, confident of further raise

*

Deals could be interesting but not at any cost

*

Strikes 10-year partnership with Google Cloud

(Adds details in paragraphs 8-11)

By Valentina Za

MILAN, May 12 (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.

($1 = 0.8914 euros)