UniCredit Cuts Revenue Target as It Struggles to Spur Growth

(Bloomberg) -- UniCredit SpA cut its full-year revenue target as sluggish European economies and the sale of an online banking unit weighed on the Italian lender.

Second-quarter revenue declined by 4.6%, hit by slowdowns for lending, trading and fees, while profit missed analyst estimates. The bank lowered its 2019 sales goal to 18.7 billion euros ($21 billion) from 19.8 billion euros previously announced. The past target is 19 billion euros if the sale of its Fineco unit is included. UniCredit confirmed its full-year adjusted profit target.

UniCredit joined other top European banks, including Commerzbank AG and ABN Amro, in warning on weaker earnings as the prospect of lower interest rates erodes their main source of income and escalating trade tensions take a toll on clients.

Lower-for-longer interest rates and the European Central Bank’s TLTRO program of providing low-cost long-term loans to banks “will lead to lower net interest income,” Chief Executive Officer Jean Pierre Mustier said on a conference call. The executive said he plans to keep focusing on “elements that we can control,” like curbing risks and costs, he said.

Mustier has cut about 14,000 jobs since taking over about three years ago and may eliminate as many as 10,000 more under a new business plan, according to people with knowledge of the matter. The CEO, who declined to comment on the Bloomberg report, said in an interview with Italian newspaper MF last month that any strategy based on revenue growth isn’t credible in today’s economic and interest rate environment.

Profit missed estimates “mainly due to lower commissions, higher loan impairments and a capital loss” from a disposal, Luigi Tramontana, an analyst at Banca Akros SpA said in a note. “We expect a negative market reaction to these lower-than-expected results.”

UniCredit declined as much as 4.6% in Milan trading and was down 3.3% at 9.9 euros as of 12:00 p.m. The stock little changed this year, compared with the 7% decline of the STOXX 600 Banks Price Index.

Exceeded Goals

The bank confirmed full-year targets such as costs and adjusted profit. Mustier expects that the adjusted profit in the second half will be at a similar level posted in first half “with an underlying run rate of about 4.3 billion.” Lower taxes in the second part of the year will allow the bank to reach the 4.7 billion-euro target, Mustier said.

UniCredit has exceeded a number of its goals set forth in Mustier’s initial three-year plan, including job cuts, branch closures and the reduction of bad debt. It plans to unveil a new strategy in December.

For the new plan, the lender is also considering options to reduce its cost of funding, including the creation of a separate holding company in Germany for its foreign businesses, people with knowledge of the matter said earlier this year. The bank is seeking advisers to review its options on its corporate structure, the people said, asking to not be identified because the process is private.

Operating expenses fell 4.4% to 2.45 billion euros in the three months through June. Operating income, which excluding gains from the sale of a stake in its Fineco online banking business, was little changed at about 1 billion euros. Net income including the stake sale rose 81% to 1.85 billion euros.

The bank’s key common equity Tier 1 ratio fell to 12.08% as of June 30 from 12.25% at the end of March on regulatory headwinds that more than offset gains from Fineco sale. The bank seeks to boost the ratio to 2.5 percentage points above what regulators require by the end of the year.

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, Ambereen Choudhury

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