UniCredit Accelerates Cleanup as Mustier Prepares for Growth

(Bloomberg) --

UniCredit SpA Chief Executive Officer Jean Pierre Mustier accelerated a long-running cleanup and bore down on costs as the Italian bank prepares to move from a strategy of recovery to growth.

Italy’s biggest bank reduced operating expenses by 4.2 percent in the first quarter from a year earlier and set aside less money for bad loans. That helped the bank beat estimates for net income even as low interest rates and a weakening Italian economy weighed on revenue, which fell by 3 percent.

UniCredit Accelerates Cleanup as Mustier Prepares for Growth

UniCredit is among the European lenders seen as a possible suitor for Commerzbank AG after the German lender’s merger talks with Deutsche Bank AG ended without a deal last month. While Mustier has refused to comment on possible deals, he has said that “all options are open” after the company finishes its current business plan at the end of 2019.

First-quarter net income rose about 25 percent to 1.39 billion euros ($1.56 billion), boosted by gains from a real estate disposal and a release of provisions after a settlement with U.S. over Iran sanctions. Adjusted profit increased slightly to 1.1 billion euros.

UniCredit was down 0.3 percent at 11.40 euros as of 9:43 a.m. The shares have risen about 17 percent in Milan trading this year compared with a 10.7 percent gain in the Euro STOXX Banks Index.

The earnings come a day after the bank said it sold a 17 percent stake in FinecoBank SpA, raising more than 1 billion euros. UniCredit also announced several steps it expects to take ahead of the new business plan, including accelerating the run down of non-essential business, adjusting its holdings of Italian sovereign debt and improving its capital buffer.

The measures are aimed at helping the bank reduce the cost of equity and give it more flexibility to increase the dividend payout gradually towards its 50 percent target.

Read More: UniCredit Signals Moves That Make Bank Stronger for Acquisitions

The bank’s key common equity Tier 1 ratio rose to 12.25 percent as of March 31 from 12.06 percent at the end of last year on improved asset quality and profit generation. The bank seeks to boost the ratio to 2.5 percentage points above what regulators require by the end of the year.

Risk Exposure

The Bank of Italy said last week that the country’s lenders remain exposed to risks including slowing economic growth and high government bond yields. The situation will limit the ability to increase interest income and a long slump may cause credit-risk costs to rise again, it said. While UniCredit has the largest operations abroad among Italian banks, it still gets close to half of its revenue from the domestic market.

Mustier spent the first part of his tenure focused on cleaning up bad loans, cutting jobs and strengthening the balance sheet. The bank has eliminated more positions than planned and achieved 95 percent of expected branch closures. It expects to exceed its targets for both those efforts for this year and it confirmed all other goals for 2019.

Other details from the first quarter:

  • Fees and commission declined 5.3 percent to 1.66 billion euros
  • Net interest income showed resilience by increasing 0.7 percent to 2.65 billion euros
  • Confirmed FY targets, including 19.8 billion euros in revenue
  • Net income was boosted by 258 million euros of gains from real estate disposals and a 320 million-euro release of provisions

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