UniCredit to clean up balance sheet after strong quarter

MILAN — UniCredit, the Italian lender at the centre of speculation about consolidation in the European banking sector, on Thursday said its net profit rose in the first quarter and that it would strive to clean up its balance sheet.

Net profit jumped by nearly a quarter to 1.38 billion euros ($1.54 billion), beating the analyst consensus. 

Net profit was boosted by so-called exceptional items, such as the sale of property assets and releasing of provisions after it agreed last month to pay $1.3 billion to settle US allegations that it processed payments that violated US sanctions on Iran and other countries.

But ING credit analyst Suvi Platerink Kosonen said "the profit improvement was driven by the cost side as operating cost were down by 4 per cent year-on-year and loan loss provisions were per cent lower year-on-year".

Revenues slid 3 per cent to 4.95 billion due to a drop in commissions, but the result was better than analysts had expected.

The bank also raised its ratio of funds available to absorb possible losses, the fully-loaded CET1 ratio, to 12.25 per cent from 12.07 per cent at the end of last year.

UniCredit confirmed its targets for the year, in particular revenues of 19.8 billion, net profits of 4.7 billion and a CET1 ratio of between 12 and 12.5 per cent.

"This was the best first quarter results in a decade for the second time in a row, underpinning the success of our current strategic plan," chief executive Jean-Pierre Mustier was quoted as saying in the bank's earnings statement.

The bank also indicated it aimed to work on reducing its non-performing loans and reduce its holdings of Italian government debt.

CMC Market's UK analyst David Madden said "today's upbeat update might renew speculation about a possible tie-up between UniCredit and Commerzbank".

There has been media speculation that UniCredit could be interested in merging with Commerzbank after the German bank's failed tie-up attempt with Deutsche Bank.

In a call with analysts, Mustier declined to comment on what he called "rumours and speculation", but he did say that "mergers, especially mergers across borders, are very difficult to achieve". 

When Mustier took over the reins at UniCredit in 2016, he launched a vast reorganisation plan for the bank. It raised 13 billion from shareholders, sold off assets, cut costs and eliminated nearly 15,000 jobs as it closed over 900 branch offices.

UniCredit is due to unveil a new strategic plan later this year, but the reduction of its stake in online bank and trader Finecobank has already raised questions about which direction the lender intends to go.

"We want to understand the logic behind the sale of the Fineco stake, a gem which has brought us extremely high profits," said Riccardo Colombani, head of the First Cisl trade union. 

"We can't wait until December 3 to learn which transformations we should prepare ourselves for," he added.

UniCredit shares were trading 0.1 per cent higher nearing midday after having spent most of the morning lower. Milan's FTSE-Mib index was down nearly 0.8 per cent.