UniCredit Falls on Lower-Than-Expected Operating Income

UniCredit SpA led stock declines among the region’s lenders after Italy’s biggest bank posted lower-than-expected third-quarter revenue and operating income.

Revenue fell 2 percent to 5.55 billion euros ($6.9 billion), missing the 5.67 billion-euro average estimate of 10 analysts surveyed by Bloomberg. Operating income declined 3 percent to 2.15 billion euros, the Milan-based lender said in a statement today.

“The operating line remains in our view weak and especially weaker than the one posted by Intesa” Sanpaolo SpA, Fabrizio Bernardi, a Milan-based analyst at Fidentiis Equities, who has a hold recommendation on the stock, wrote in a note today.

Chief Executive Officer Federico Ghizzoni is curbing risk, cutting expenses and shedding assets as part of a plan targeting 2 billion euros of net income this year. The lender passed the European Central Bank’s health check last month after writing down 9.3 billion euros of loans in the final three months of 2013, resulting in a record 15 billion-euro loss.

UniCredit dropped 3.3 percent to 5.41 euros, the worst performer in the STOXX 600 Banks Index, giving the company a market value of about 31.7 billion euros.

Net Income

Intesa, Italy’s second-largest bank, today said operating profit increased 1.6 percent to 2.14 billion euros.

Net income at UniCredit more than tripled to 722 million euros from 204 million euros a year earlier. Earnings exceeded the 493 million-euro average estimate of nine analysts surveyed by Bloomberg, benefiting from several one-time items that lowered the lender’s provisions.

The bank set aside 754 million euros to cover loan losses, down from 1.48 billion euros a year earlier, after the bank reversed 500 million euros of bad loans. The bank recovered a large German exposure, the lender said. It also adjusted the coverage on doubtful loans in Italy.

The results “bring us very close to our target of 2 billion euros net profit for 2014,” Ghizzoni said in the statement. A “difficult macroeconomic context” persists, he said.

Banks across Europe cleaned up balance sheets to bolster capital before the ECB’s tests. UniCredit’s common equity Tier 1 ratio, a measure of financial strength, was unchanged at 10.8 percent as of Sept. 30 compared with the end of June under phased-in Basel III rules.

UniCredit reimbursed about 17 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.

Higher Dividends

UniCredit may consider paying higher dividends, Ghizzoni said during a conference call today. “Given our capital level, there is room to give more dividend,” he said, adding that a decision will be taken close to the end of the year.

The bank’s ratios assume a dividend accrual of 10 cents, in line with 2013.

UniCredit fourth-quarter earnings may be positively affected by talks to sell assets, the CEO said, without giving details. The bank is in exclusive talks with Fortress Investment Group LLC jointly with the Italian asset manager Prelios SpA to sell its bad-loans division UniCredit Credit Management Bank SpA.

The lender also is in talks with Banco Santander SA to combine its Pioneer Global Asset Management SpA with the Spanish lender’s fund business.

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