UniCredit SpA (UCG), Italy’s biggest bank, said first-quarter profit rose 13 percent as higher trading income related to the buyback of its securities offset a drop in fees and lending.
Net income climbed to 914 million euros ($1.18 billion) from 810 million euros a year earlier, the Milan-based company said in a statement today. That beat the 832 million-euro average estimate of 10 analysts surveyed by Bloomberg.
Chief Executive Officer Federico Ghizzoni is cutting costs and reviewing the bank’s strategy in central and eastern Europe as part of a plan approved in November to strengthen finances and boost profit. The lender raised 7.5 billion euros in a rights offer in January to meet capital targets set by the European Banking Authority.
The results “look better than expected and this is mainly due to low quality items like trading gains and lower-than- expected provisions,” analysts at Fidentiis Equities wrote in a note to clients today.
UniCredit said it posted a 477 million-euro net gain from the buyback of 1.3 billion euros of bonds and 473 million pounds ($765 million) of securities completed in February.
Net interest income dropped to 3.8 billion euros in the quarter from about 3.9 billion euros a year earlier, while net fees declined 6 percent to about 2 billion euros. Loan-loss provisions dropped to 1.4 billion euros from 1.5 billion euros a year ago. The lender cut 1,077 jobs in first quarter, in line with the firm’s business plan, it said in a slide presentation on its website.
‘Ahead of Schedule’
The bank’s core Tier 1 ratio, a key measure of financial health, rose to 10.3 percent as of March 31 from a pro-forma 9.97 percent at the end of December, which included the share sale completed in January.
UniCredit rose 7 percent to 2.85 euros at 3:40 p.m. in Milan, giving the company a market value of 16.5 billion euros. The Bloomberg Banks and Financial Services Index gained 2 percent, to bring its increase to 1 percent this year, compared with UniCredit’s 33 percent decline.
“Thanks to capital strengthening measures such as the subordinated bonds buyback, we are ahead of schedule of our 2012 Basel III common equity target,” Ghizzoni, 56, said in the statement. “UniCredit showed a strong net profit evolution, an improved liquidity position and good progress in implementing the strategic plan.”
The lender, which requested 26 billion euros in the ECB’s two longer-term refinancing operations, has completed 44 percent of its 31 billion-euro funding need for 2012, of which 51 percent is related to Italy, the company said. Deposits grew 2 percent in the quarter, improving the bank’s liquidity, it said.
The first-quarter results may lead to a “likely positive dividend surprise,” Mediobanca analysts wrote in a note to clients today.
First-quarter profit before taxes more than tripled in Italy because of higher revenue and lower costs.
“Business refocusing is well under way, with Italy continuing to show positive progress,” UniCredit said in the statement. Revenue at the Italian business rose 4.2 percent on an annual basis to 2.6 billion euros, operating costs dropped 4.7 percent to 1.4 billion euros and loan-loss provisions increased 1 percent to 935 million euros.
Central and eastern Europe, the region including Poland, Russia and Turkey, contributed half of UniCredit’s recurring net operating profit in the quarter. Profit advanced 2 percent to 563 million euros as declining revenue was offset by lower charges for bad loans. Earnings in Turkey fell 16 percent due to lower fee income and higher risk charges. Russian earnings advanced 8 percent, while Polish profit declined 3 percent, the company said.
Ghizzoni is focusing investments on countries with the biggest and most profitable units in the emerging economies of Europe, where UniCredit is the largest lender. He has named Russia, Poland, Turkey and the Czech Republic as “growth engines,” while putting expansion plans in Hungary and Romania on hold and not ruling out the sale of units in some of the 15 formerly communist countries.
Unlike rivals including OTP Bank Nyrt., Erste Group Bank AG and Raiffeisen Bank International AG (RBI), UniCredit has remained profitable in Hungary. First-quarter earnings benefited from writebacks of provisions it earlier had made against losses there.
The only unprofitable countries in the region for UniCredit in the quarter were Kazakhstan and the Baltics.
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