UniCredit Profit Beats Estimate as Italy Defaults Slow

UniCredit SpA, Italy’s biggest bank, said first-quarter profit fell less than expected as new credit defaults in Italy slowed and income from trading beat estimates. The shares climbed.

Net income decreased to 449 million euros ($583 million) from 914 million euros a year earlier, the Milan-based bank said in an e-mailed statement today. That beat the 126.2 million-euro average estimate of six analysts surveyed by Bloomberg. Profit last year was boosted by a one-time gain of 477 million euros from a bond buyback.

“The credit deterioration in Italy slowed down in the quarter,” Chief Executive Officer Federico Ghizzoni said on a conference call with analysts. “Management actions to minimize future inflows into impaired loans are starting to show the first positive results.”

Ghizzoni is lowering costs, reorganizing UniCredit’s Italian network and reviewing strategies in central and eastern Europe to strengthen its finances. The company, which completed the sale of its unprofitable Kazakh unit ATF Bank for about $550 million last week, said in March that it will reduce its financial projections because of the recession in Italy and the rest of Europe.

The shares rose as much as 3 percent in Milan trading. They climbed 2.3 percent to 4.16 euros at 5 p.m., valuing the company at 24.1 billion euros. The 40-member Bloomberg Europe Banks & Financial Services Index advanced 0.2 percent.

Soured Lending

UniCredit set aside fewer provisions for bad loans as new inflows of soured lending in Italy fell for a second quarter. The provisions dropped 9.3 percent to 1.23 billion euros from a year earlier and 73 percent from the previous quarter.

“Despite an economic environment currently lacking in showing signs of improvement across Europe, and in Italy in particular, cautious optimism remains on inflows going forward,” UniCredit said.

Western Europe had “a renewed positive contribution after several difficult quarters,” with net operating profit of 463 million euros, the bank said. Poland and central and eastern Europe contributed profit of 626 million euros.

“Definitely better than expected net income,” Giovanni Razzoli, an analyst at Equita Sim SpA in Milan, wrote in an e-mailed report to clients. “If these trends are confirmed going forward, I see a significant revision of consensus for the fiscal year.”

The bank’s core Tier 1 capital ratio, a key gauge of financial strength, rose to 11 percent on March 31 from 10.8 percent at the end of December.

Profit Increase

UniCredit is expected to post profit of 904.2 million euros this year compared with 865 million euros in 2012, according to the average estimate of 18 analysts surveyed by Bloomberg. The 12-month price estimate for the stock is 3.86 euros, 5 percent below yesterday’s closing price, according to data compiled by Bloomberg.

Revenue fell 15 percent to 6.08 billion euros in the first quarter. Income from trading dropped 49 percent to 650 million euros from a year earlier, when the bank realized the net gain from buying back 1.9 billion euros of Tier 1 and Tier 2 bonds. Analysts expected income from trading to be 477 million euros, according to a company survey published on May 6.

UniCredit, which requested 26 billion euros during the European Central Bank’s two longer-term refinancing operations, has completed 27 percent of its 29 billion-euro funding needs for this year, Ghizzoni said.

Customer deposits fell by 0.4 percent from the end of last year to 407.8 billion euros “following the expiry of some corporate and institutional big tickets in central and eastern Europe,” UniCredit said. Loans with customers decreased by 1.8 percent on the quarter to 537.5 billion euros, it said.

UniCredit said it will post gains in the coming quarters from assets and securities transactions. It expects a return of 258 million euros in the second quarter from a bond buyback completed in April and about 250 million euros in the third quarter from the sale of an insurance business in Turkey.

(Updates with CEO in third paragraph, analyst in ninth.)
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