UniCredit SpA’s second-quarter profit rose 12 percent, beating estimates as lower provisions for loan losses and higher income from fees and asset sales offset tax charges.
Net income rose to 403 million euros ($539 million) from 361 million euros a year earlier, Italy’s biggest bank said today. Earnings exceeded the 298.7 million-euro average estimate of nine analysts surveyed by Bloomberg.
Chief Executive Officer Federico Ghizzoni is cutting expenses and shedding assets as the European Central Bank inspects euro-area banks in an effort to pinpoint vulnerable lenders. UniCredit is selling its credit management unit UCCMB and is seeking a partner for Pioneer Global Asset Management SpA.
“UniCredit second-quarter results looks better mostly on lower provisions and partially on better costs,” Fabrizio Bernardi a Milan-based analyst at Fidentiis Equities wrote in a note today.
UniCredit fell 1 percent to close at 5.86 euros in Milan trading, giving the bank a market value of 34.4 billion euros. The stock has advanced about 8.8 percent this year.
The bank set aside 1 billion euros to cover losses, down from 1.53 billion euros a year earlier. Provisions include 30 million euros of charges related to UniCredit Bank Hungary Zrt, its unit in Hungary where the government is forcing lenders to compensate borrowers for losses on foreign-currency loans and for increases in interest and fees on consumer loans.
“These results bring us closer to our target,” which is now “more challenging in light of the revised tax charge on the valuation of the stake in Bank of Italy,” Ghizzoni said in the statement.
Banks across Europe have cleaned up balance sheets to bolster capital before the ECB becomes the euro-area’s bank supervisor in November. The ECB is looking at how lenders value their assets, prompting UniCredit to write down 9.3 billion euros of loans in the last three months of 2013, resulting in a record 15 billion-euro loss. The ECB will also conduct stress tests to determine whether the region’s banks can weather a financial crisis amid concern many haven’t recovered from the 2008 meltdown.
UniCredit’s common equity ratio under phased-in rules, a measure of financial strength, rose to 10.8 percent as of June 30 from 9.9 percent at the end of March.
UniCredit’s earnings were affected by several one-time charges and gains. Its tax rate more than doubled after the government raised the levy on gains from Bank of Italy shares and revised rules for deferred assets. The bank posted a capital gain of 132 million euros from the sale of its stake in the payment processing firm SIA SpA.
Italy’s central bank revalued its share capital this year for the first time since the 1930s. This resulted in a windfall for commercial banks with stakes in the Bank of Italy, strengthening their position with the ECB.
UniCredit joined Intesa Sanpaolo SpA and other lenders in the country in moving clients toward more lucrative products as the ECB kept interest rates at record-low levels, hurting profit margins. Fee and commission income increased 7 percent to 1.95 billion euros, boosted by a rebound in assets under management and bank-sponsored insurance products as well as credit-related fees at its corporate and investment bank division.
Trading income fell by half to 359 million euros, leading to a 6 percent decline of total revenue to 5.7 billion euros. Operating costs dropped 1 percent to 3.42 billion euros.
UniCredit reimbursed 10 billion euros of the 26 billion euros it borrowed from the ECB during two longer-term refinancing operations in late 2011 and early 2012 to spur lending to the broader economy. The lender said it would gradually repay the 9 billion euros outstanding. UniCredit has completed 53 percent of its funding needs for 2014, it said.
UniCredit is looking for candidates to be minority partners at its asset management unit Pioneer Global, Ghizzoni said during the conference call. “Pioneer is a strategic asset, we are considering minority partner to accelerate unit’s organic growth,” he said.
UniCredit received three offers for as much as 50 percent of the unit last week, a person familiar with the matter has said. UniCredit may have received offers from CVC Credit Partners European Opportunities, Banco Santander SA and Advent Capital Management, the person said.
The lender is in advanced negotiations to sell its bad-loan unit, UniCredit Credit Management Bank SpA, and Ghizzoni expects to complete the transaction this year. “This is a complex deal, because it involves a platform and a loan portfolio,” he said. The goal is to generate gains on the platform to offset losses on the portfolio.
The sales are part of the bank’s plan to boost capital. Earlier this year UniCredit raised 673 million euros in the first public sale of shares in its online broker unit FinecoBank SpA. It also has agreed to sell its 81 percent in German online broker DAB Bank AG to BNP Paribas SA for 354 million euros.
UniCredit’s Jean-Pierre Mustier, a 26-year veteran of European investment banking who joined the bank in 2011, will step down as deputy general manager in charge of the corporate and investment bank division as of Jan. 1, the lender said in a separate statement.
Mustier will join UniCredit’s international advisory board as a non-executive director and will also take on an external role focused on financing the broader economy. He will be succeeded by UniCredit’s Gianni Franco Papa, who currently runs the Central and Eastern Europe division.