UniCredit SpA (UCG), Italy’s biggest bank, said second-quarter profit fell 67 percent as provisions for bad loans increased and the company earned less from lending and fees.
Net income dropped to 169 million euros ($207 million) from 511 million euros a year earlier, the Milan-based bank said in a statement today. That missed the 305 million-euro average estimate of 14 analysts surveyed by Bloomberg.
“The decrease of our net profit is mostly due to our loan loss provisions, with the overall coverage ratio up in Italy in the quarter,” Chief Executive Officer Federico Ghizzoni said in the statement. “The turnaround in Italy is actively progressing as seen by first half improved operating profitability.”
Ghizzoni is cutting jobs and reorganizing the bank to improve profitability as the sovereign debt crisis and Italy’s third recession in a decade force lenders to boost provisions. Intesa Sanpaolo SpA (ISP), Italy’s second-biggest bank, posted a smaller-than-estimated decline in second-quarter profit today after a tax gain cushioned the impact of rising bad loans and lower revenue.
UniCredit’s results are “worse than Intesa’s,” hurt by “weaker core revenues and higher loan loss provisions,” analysts at Intermonte wrote in a note to clients.
The bank, which rose as much as 8 percent before the release, was 7 percent higher at 2.76 euros by 4:50 p.m. in Milan trading.
UniCredit’s loan-loss provisions increased to 1.91 billion euros in the quarter from 1.18 billion euros a year ago. Trading income rose 18 percent to 407 million euros in the quarter, while net fees declined 5 percent to about 1.95 billion euros. The results include a 120 million-euro gain from the sale of UniCredit’s stake in London Stock Exchange Group Plc.
The lender, which requested 26 billion euros in the ECB’s two longer-term refinancing operations, has completed 68 percent of its 31 billion-euro funding needs for 2012. Seventy-eight percent of Italy’s funding requirements are covered. Deposits increased 2.8 percent from the previous three months.
UniCredit was among 13 banks that had their credit ratings cut by Moody’s Investors Service last month following the reduction on Italy’s debt rating on July 13. The bank was lowered two steps to Baa2. It was the second time in two months that Moody’s downgraded the bank, which has “high direct exposure to sovereign debt, despite its substantial international activities,” the rating company said.
UniCredit’s Italian bond holdings at the end of June totalled 41 billion euros, about the same level as in March. The bank’s core Tier 1 capital ratio, a key measure of financial health, increased to 10.4 percent on June 30 from 10.3 percent at the end of March.
UniCredit said it settled disputes with Italy’s tax authority, including the so-called “Brontos” case. The settlement, which included costs, penalties and taxes, was about 264 million euros. The amount will be covered by provisions already accounted for in previous quarters.
Former UniCredit Chief Executive Officer Alessandro Profumo is among 20 bankers and ex-managers of the bank and of Barclays Plc charged with fraud in June in a tax probe linked to the investment plan known as Brontos. Prosecutor Alfredo Robledo said UniCredit used the Brontos vehicle, arranged by Barclays, to evade taxes. The trial is scheduled to start Oct. 1.
UniCredit’s units in eastern Europe generated almost the entire net operating profit in the second quarter, according to the bank’s earnings presentation. Including Poland, the bank’s net operating profit from the region declined 2.7 percent to 576 million euros.
Earnings in three of UniCredit’s four biggest units -- Poland, Turkey and Croatia -- declined in the second quarter as loan-loss provisions increased in all three countries. UniCredit partly owns Yapi ve Kredi Bankasi in Turkey, controls Poland’s second-biggest lender, Bank Pekao, and Croatia’s biggest bank, Zagrebacka Banka.
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