UniCredit Pushes on Cost, Asset Quality to Affirm Leadership

(Bloomberg) -- UniCredit SpA Chief Executive Officer Jean Pierre Mustier is ramping up cost cuts and improving asset quality to keep his promise of building a leading pan-European bank.

A 5.2 percent decline in operating expense in the first quarter helped the bank increase net income to 1.11 billion euros ($1.3 billion) from 907 million euros a year earlier. That beat the 796 million-euro profit expected by the average of 8 analysts surveyed by Bloomberg.

Mustier is seeking to create a leaner business with fatter fees and commissions while the bank’s main competitor, Intesa Sanpaolo SpA, is betting on expansion in insurance and wealth management. Group revenue slipped from a year earlier as increased fee income wasn’t enough to offset a decline in earnings from lending.

The results “are another tick-in-the-box on the restructuring story -- expect stock to outperform today,” Jefferies analysts Benjie Creelan-Sandford and Marco Nicolai wrote in a note to investors. The bank’s fees, costs and provisions were all better than expected and capital is being deployed to accelerate the rundown of non-performing loans.

The lender is accelerating the reduction of soured debt, increasing its bad-loan coverage. UniCredit joined other Italian banks in using transitional rules under the new IFRS 9 accounting standard that allow them to spread the impact of increased provisions in five years.

Asset Cleanup

Asset quality at UniCredit is improving much faster than expected, Mediobanca’s Andrea Filtri said in a note. The bank improved its target for 2019 non-performing loan exposures by 2.3 billion euros. Earlier this year, it closed the sale of 17.7 billion euros of NPLs. This year, UniCredit plans to sell additional 4 billion euros of soured debt, half of which is non-core.

UniCredit climbed as much as 2.6 percent in Milan trading and was up 2.4 percent at 17.96 euros as of 9:23 a.m. That boosts the bank’s gain this year to 15 percent.

The bank’s restructuring plan for 2019 is ahead of schedule, with about three quarters of the bank closures and full-time employee reductions already achieved, UniCredit said on Thursday.

UniCredit is among the biggest banks in central and eastern Europe, serving 25 million clients in 14 countries including Russia and Turkey. The central and eastern Europe division was the largest contributor to first-quarter profit, with net income up 33 percent to 415 million euros.

Fees and commissions boosted revenue, rising 2.8 percent from a year earlier to 1.7 billion euros. Group revenue was down 0.7 percent as net interest income declined 0.9 percent.

Other highlights from earnings:

  • 1Q revenue fell 0.7% to EU5.1b
    • 1Q fees and commission rose 2.8% to EU1.7b
    • 1Q net interest income declined 0.9% to EU2.6b
  • 1Q operating costs declined 5.2% to EU2.74b
  • Gross NPLs ratio at 9.5% end 2017 from 11.6% a year earlier
  • 1Q gross NPLs declined to EU44.6b vs EU48.3b in 4Q
  • CET1 ratio increased to 13.06% vs 11.45% year ago
  • Bank targets CET1 ratio of 12.3%-12.6% end 2018

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