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UniCredit Swings to Quarterly Loss After Writedowns Increase

UniCredit SpA CEO Federico Ghizzoni
UniCredit SpA Chief Executive Officer Federico Ghizzoni is reorganizing the bank and selling non-strategic assets to improve profitability as Italy's longest economic slump in 20 years and tougher rules force the lender to increase provisions. Photographer: Simon Dawson/Bloomberg

UniCredit SpA, Italy’s biggest bank, plans to revise its financial targets after bad loans tripled to produce the first quarterly loss since 2011.

The fourth-quarter net loss of 553 million euros ($719 million) compared with a profit of 114 million euros a year earlier, the Milan-based lender said in a statement today. That was bigger than the 374.9 million-euro loss estimated by nine analysts surveyed by Bloomberg.

Chief Executive Officer Federico Ghizzoni is reorganizing the bank and selling assets to improve profitability as Italy’s longest economic slump in 20 years and tougher rules force the lender to increase provisions. Loan-loss provisions more than tripled to 4.6 billion euros in the fourth quarter.

“Quality of the results is slightly disappointing and guidance for 2013 very bearish, especially in terms of cost of risk,” analysts at Equita Sim SpA wrote in a note to clients. “Results are below estimates on monster provisions on loans.”

UniCredit shares fell as much as 2.5 percent and were down 1 percent at 3.77 euros at 4:29 p.m. in Milan, reversing earlier gains. That gave the bank a market value of 21.7 billion euros.

“Given the current challenging macroeconomic environment, the strategic plan financial targets will be revised,” the bank said in a statement.

Lower Income

UniCredit expects lower net interest income this year as loan demand weakens and funding costs increase. Revenue in the fourth quarter fell 5.6 percent to 5.7 billion euros on lower income from lending, trading and fees.

The additional provisions allowed UniCredit to increase its coverage ratio on Italian impaired loans to 43.4 percent at the end of December from 40.2 percent three months earlier. The bank posted a 2.7 billion-euro tax gain in the quarter.

UniCredit also faces risks from its position as one of the biggest banks in central and eastern Europe. Today it announced the sale of its unprofitable Kazakh unit, ATF Bank, at a loss.

“Asset quality development seems the main risk for group capital and profitability,” Azzurra Guelfi, a London-based banking analyst at Citigroup Inc., wrote in a report March 8. “UniCredit has a large exposure to CEE, which still leaves a risk of incurring sizable credit or other losses in this downturn.”

UniCredit last posted a loss in the third quarter of 2011, when a writedown of goodwill and intangible assets brought a record loss of 9.2 billion euros.

The bank proposed a payout of 9 cents a share from 2012 profit of 865 million euros, after not distributing a dividend a year earlier. That’s higher than the 6 cents estimate of analysts surveyed by Bloomberg.

The lender’s core Tier 1 ratio, a key measure of financial strength, rose to 10.84 percent at the end of December from 10.7 percent three months earlier.

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