UniCredit Climbs as Profit Beats Estimates, Capital Rises

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UniCredit SpA rose the most in almost three years after second-quarter profit beat analyst estimates and the bank reported higher capital buffers.

Net income rose to 522 million euros ($568 million) from 403 million euros a year earlier, the company said Wednesday. The common equity Tier 1 ratio, a key measure of financial strength, was at 10.4 percent at the end of June, up from 10.1 percent in March.

Chief Executive Officer Federico Ghizzoni is reorganizing management at Italy’s biggest bank as he prepares to overhaul the lender’s strategic plan and cut costs to revive profit. Investors are urging the bank to strengthen its finances without tapping shareholders for funds.

“We want to identify actions especially on the cost side that can help to maintain our targets,” Ghizzoni said in an interview with Bloomberg Television. Low interest rates, which have squeezed lending margins, will continue for at least another two to three years, he said.

UniCredit rose 6.4 percent, the most since September 2012, to 6.36 euros in Milan trading, giving the bank a market value of about 38 billion euros.

Management Reorganization

“Today’s best news is about capital ratios that showed a significant improvement, allaying concerns of a capital raising,” said Jacopo Ceccatelli, chief executive officer at Marzotto SIM SpA, a Milan-based brokerage. “Overall results are positive.”

In the management shakeup announced on Wednesday, UniCredit scrapped the role of general manager, held by Roberto Nicastro, who will leave the bank. Chief Financial Officer Marina Natale was promoted to deputy general manager, with responsibility for asset management. The bank aims to simplify the structure and reduce costs of employing 147,000 people across 17 countries.

Nicastro will leave on Oct. 1 and his responsibilities will be shared by Natale, along with Paolo Fiorentino and Gianni Papa, the other deputy general managers. Nicastro will receive a severance payment of 5.4 million euros, the company said.

Chief Risk Officer Alessandro Decio will leave the role of chief risk officer that will be taken by Massimiliano Fossati, currently CRO of Italy’s business.

Asset Quality

“UniCredit’s asset quality improved significantly as a result of the reduction in impaired loans, deriving from a resilient performing loan book and an increase” in debt collections, Ghizzoni said.

UniCredit set aside 913 million euros to cover losses on loans, down from 1 billion euros a year earlier. The bank, which is improving the quality of its assets after creating a division to cut non-core assets and curb risk, sold 734 million euros of bad loans in the quarter.

Revenue declined 1 percent to 5.74 billion euros in the quarter, as pressure on margins from low interest rates offset higher income from fees and trading.

The CEO reiterated that the bank is focusing on internal growth, while ruling out an exit from Russia and Turkey. He said that the Ukranian unit is still for sale and talks are ongoing.

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