UniCredit Turnaround Plan Starts to Take Hold

(Bloomberg) --

UniCredit SpA Chief Executive Officer Jean Pierre Mustier can point to higher earnings and stronger capital next month when he takes his new three-year strategic plan to investors.

Italy’s biggest bank posted a better-than-expected 26% rise in adjusted profit in the third quarter as a rising trading income and higher fees more than offset lower earnings from lending. UniCredit also boosted a key measure of financial strength after the sale of businesses, posting a CET1 capital ratio of 12.6%.

The result “leaves management in a strong capital position to formulate an ambitious return-on-tangible-equity target at its upcoming December investor day,” Adrian Cighi, an analyst at RBC Capital markets, wrote in a note. “Good quarter on earnings & capital,” both better than expected, he said.

UniCredit was the best performer on the 45-member STOXX 600 Banks Index. Shares rose as much as 5.5% in Milan trading, the most since April and were up 4.3% at 12.60 euros as of 9:39 a.m. That gives the bank a market value of about 28 billion euros ($31 billion).

The CEO, who focused on cleaning up bad loans, cutting jobs and strengthening the balance sheet during the first part of his tenure, plans to unveil a new strategic plan dubbed “Team 2023” in London on Dec. 3. Mustier has already said that he will look to simplify the business, speed up the sale of non-essential businesses and improve capital.

UniCredit raised about 785 million euros ($868 million) by selling its entire 8.4% stake in Mediobanca SpA, the lender said in a statement late Wednesday. Earlier this year the bank raised about 2.1 billion euros by selling its holding in Banca Fineco SpA earlier this year.

UniCredit Set to Raise $868 Million By Selling Mediobanca Stake

Cutting bad debt has been a major cost saver for the Milan-based bank, with provisions for the loans falling by almost a fifth in the third quarter alone. The bank said it has reduced non-performing loans to 5.7% of the total from 7% in June and it plans to cut the total to less than 10 billion euros by the end of the year.

UniCredit confirmed full-year targets on adjusted profit and costs. The quarterly net income isn’t comparable with earnings from a year earlier, when the bank booked charges on Turkish assets and provisions for a U.S. penalty.

The bank is considering the creation of a separate holding company for its foreign businesses that could be based in Germany or in another country, including Italy, people with knowledge of the matter have said. That may help it reduce its cost of funding.

Higher Trading

UniCredit joined other Italian banks, including Intesa Sanpaolo SpA and Banca Monte dei Paschi di Siena SpA, in posting third quarter trading gains. Trading income increased by 29% and fees rose by 3%. That helped the lenders overcome the impact of negative interest rates and sluggish European economies on their main lending business.

SocGen, HSBC Lead Slump in Equities Revenue at European Banks

While UniCredit is considering passing on some of the negative-rate burden to clients, it would only apply to accounts of more than 1 million euros and then only on a selective basis. In August the lender cut its full-year revenue target to 18.7 billion euros.

• 3Q net income EU1.1b from EU29m year earlier
• 3Q operating expense fell 1.8% to EU2.45b
• CET1 ratio, a key capital measure, rose to 12.6% as of Sept. 30 from 12.08% at the end of June, boosted by Fineco stake sale
• The bank seeks to boost the ratio to 2.5 percentage points above what regulators require by the end of the year

--With assistance from Chiara Remondini.

To contact the reporter on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen

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