UniCredit Beats Estimates as Mustier's Cleanup Takes Hold

UniCredit SpA bounced back from a balance-sheet cleanup and a record share sale to deliver first-quarter profit that exceeded analysts’ estimates. The shares climbed as much as 5.4 percent.

Net income more than doubled to 907 million euros ($986 million) from 406 million euros a year earlier, lifted by higher revenue and lower costs and provisions, the Milan-based bank said in a statement Thursday. Profit beat the 587 million-euro average of 10 estimates compiled by Bloomberg.

Since taking over in July, Chief Executive Officer Jean Pierre Mustier has exited businesses, sold bad loans and raised 13 billion euros to boost capital, part of a plan to simplify the bank’s structure and cut costs. The bank is targeting 4.7 billion euros of net profit in 2019 in a strategy focused on shedding bad loans and trimming expenses as slow growth in Italy holds back revenue.

“While the net profit beat is mostly trading related, it seems that actually all the lines of the P&L are improving, making the recovery visibly more recurring,” Fabrizio Bernardi, an analyst at Fidentiis Equities with a hold rating on the stock, wrote in a note Thursday. “The overall picture is completed by improving asset quality trends and in-line capital ratios.”

UniCredit was up 4 percent at 16.73 euros euros as of 9:40 a.m. in Milan, making it the best performer in the STOXX 600 Banks Index. The shares have risen about 22 percent this year, compared with a 12 percent increase in the index.

“These results underpin UniCredit’s strengths as a simple pan-European commercial bank,” Mustier said in the statement, adding that the bank confirmed a target for net interest income of 10.2 billion euros in 2017 and an end-of-year fully-loaded CET1 ratio of more than 12 percent. The bank’s income from trading was boosted by some large client-driven transactions that, by their nature, aren’t recurring, he said on a conference call.

Revenue Increase

Revenue rose 3.4 percent to 4.83 billion euros as higher income from trading, fees and commissions more than offset lower revenue from lending. Operating costs declined 3 percent to 2.89 billion euros.

Net interest stabilized in line with projections, while fees improved, supported by a stronger network, Mustier said on the conference call.

“Strong headlines across the board on asset quality, capital and profit recovery should all support continued re-rating of the stock,’’ Jefferies International analyst Benjie Creelan-Sandford wrote in a report.

UniCredit sold a big chunk of troubled loans at a discount last year, paving the way for fewer provisions and easing pressure on the bank’s capital buffers. Loan loss provisions in the first quarter declined to 670 million euros from 760 million euros a year earlier, while analysts estimated 703 million euros.

The bank’s common equity Tier 1 ratio, a measure of financial strength, rose to 11.45 percent from 11.15 percent pro-forma at the end of December.

Divisional Results

The corporate and investment banking division was the largest contributor to first-quarter profit, with net profit up 19 percent to 364 million euros. The unit “leveraged on its market strength as debt financing house with leading role in large deals such as Volkswagen as well as multiple domestic mid-cap transactions with commercial banking customers,” UniCredit said.

Earnings during the first quarter were hit by other charges and provisions totaling 463 million euros, including a 295 million-euro contribution to the country’s bank-sponsored rescue fund for ailing lenders. The bank also posted a 376 million-euro profit from its Pioneer Investments fund management business and Polish unit Bank Pekao SA, with the sales of both businesses to be completed this year.

— With assistance by Dan Liefgreen