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European Stocks Little Changed; Total Drops, RBS Advances

Federico Ghizzoni, chief executive officer of UniCredit SpA. Photographer: Giuseppe Aresu/Bloomberg
Federico Ghizzoni, chief executive officer of UniCredit SpA. Photographer: Giuseppe Aresu/Bloomberg

March 27 (Bloomberg) -- UniCredit SpA, Italy’s biggest bank, said fourth-quarter profit dropped 65 percent, a smaller decline than analysts estimated, as it earned less from lending and wrote down the value of Greek bonds.

Net income fell to 114 million euros ($152 million) from 321 million euros a year earlier, the Milan-based company said in a statement today. That beat the 40.6 million-euro average estimate of 12 analysts surveyed by Bloomberg. The lender, as announced in November, scrapped a dividend for 2011.

Chief Executive Officer Federico Ghizzoni is cutting costs, reducing staff and reviewing the bank’s strategy in central and eastern Europe as part of a plan approved in November to boost profitability. The bank raised 7.5 billion euros in a rights offer in January to meet capital targets set by the European Banking Authority.

“The resilience of the group in a very challenging environment and the significant rebound of the results of our Italian business proves the pertinence of our actions,” Ghizzoni said in statement today. UniCredit said that its “strategic-plan actions and targets are on track.”

The bank wrote down its Greek sovereign bond holdings by 70 million euros, net of taxes, booked 63 million euros of costs related to severance and retirements and posted 52 million-euro losses on its 6.6 percent stake in Fondiaria-SAI SpA.

Revenue Declines

UniCredit’s net interest income dropped to 3.8 billion euros in the quarter from about 4 billion euros a year earlier, while total revenue declined 5.9 percent to 6.1 billion euros.

“We see pressure on Italy because of recession,” Ghizzoni said on a conference call today. “Asset quality in Italy remains challenging, while it is improving in Germany,” he said, adding that the bank doesn’t need to review its five-year plan because of Italy’s economic environment.

Loan-loss provisions dropped to 1.5 billion euros from 1.8 billion euros a year earlier. Risk-weighted assets at the end of the year increased 2.3 percent from Sept. 30 to 460.4 billion euros. The bank said its core Tier 1 ratio, a key measure of financial health, was 8.4 percent on Dec. 31 and reached 9.97 percent including a share sale completed in January.

The “key beat is on lower risk-weighted assets and slightly better costs and provisions,” Ronny Rehn, an analyst at Keefe Bruyette & Woods in London, wrote in a note to clients.

UniCredit climbed as much as 4 percent and closed up 0.1 percent at 3.97 euros in Milan, giving the company a market value of 23 billion euros. The Bloomberg Europe Banks and Financial Services Index has gained 12 percent this year, while UniCredit declined 6 percent.

Loan Losses Fall

In central and eastern Europe, the region including Poland, Russia and Turkey, which contributed two-thirds of UniCredit’s net operating profit in the quarter, earnings advanced as charges for bad debt declined. Loan-loss provisions fell by half in Turkey, by 19 percent in central Europe and by 32 percent in south-eastern Europe, UniCredit said.

“We can look at opportunities in central-eastern Europe,” Ghizzoni said. In the region, “there are some countries where we are investing, others where we are reviewing our presence, in line with our business plan.”

Ghizzoni is focusing investments on the countries with the biggest and most profitable units in the region, where UniCredit is the largest lender. He has named Russia, Poland, Turkey and the Czech Republic as opportunities, while putting expansions in Hungary and Romania on hold and not ruling out the sale of units in some of the 15 formerly communist countries.

Kazakhstan, Baltics

Unlike OTP Bank Nyrt., Erste Group Bank AG and Raiffeisen Bank International AG, UniCredit remained profitable in Hungary, defying the nation’s bank levy and a loss on foreign-currency mortgages. The only money-losing countries in the region were Kazakhstan and the Baltics.

“UniCredit is planning to the tap market with unsecured bonds,” Chief Financial Officer Marina Natale said. “We are ready and prepared to seize market funding opportunities in the next few months if they arise.”

The lender has completed 30 percent of its 31 billion-euro needs for 2012, Ghizzoni said, adding the amount is already covered considering borrowings from the European Central Bank.

UniCredit requested 26 billion euros in the ECB’s two longer-term refinancing operations, Ghizzoni said. The funds will be used for lending and not to increase holdings in Italian sovereign debt, he said. The bank owns about 37 billion euros in government bonds, he said.

To contact the reporters on this story: Sonia Sirletti in Milan at Francesca Cinelli in Milan at

To contact the editor responsible for this story: Frank Connelly at

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