UniCredit stuns markets with bumper profit

Milan — UniCredit stunned markets on Monday with a bumper 2023 profit, which it said it will distribute entirely to shareholders, and pledged to match it this year despite a toughening backdrop.

Shares in Italy’s second-biggest bank jumped 10% in early trade after earnings were much stronger than forecast and it upgraded its outlook for a year in which interest rates are expected to start declining.

Other leading European banks that reported full-year earnings last week struck a cautious note, in contrast to UniCredit’s upbeat tone.

“We face the future with optimism,” CEO Andrea Orcel told analysts.

UniCredit shares are now at their highest level since 2015, having surged nearly 250% since Orcel, former head of investment banking at UBS, took the reins in April 2021.

“[The] stock is one of most loved in the sector, but the story continues to overdeliver,” Citi analyst Azzurra Guelfi said.

The bank reported net income in the October-December period of €2.8bn, which includes a €900m writeback of tax assets, and compares with a consensus forecast provided by Unicredit of €1.2bn.

Even stripping out the tax writebacks, revenue confounded forecasts for a decline, rising 4.6% year on year.

Both income from lending and net fees strengthened from the previous quarter, while analysts had expected a weakening.

Provisions against loan losses in the fourth quarter were less than half what they had forecast.

The lender reported a full-year 2023 profit of €8.6bn net of tax asset write-ups, and said it will allocate all of that for share buybacks and dividends. It had been guiding for distribution of at least €6.5bn over 2023 on a net profit of €7.25bn or higher.

“Beat across the board on the profit and loss statement is dwarfed by the umptieth cashback top-up,” Mediobanca Securities said.

UniCredit will adopt a 90% payout policy, raising the cash part to 40% of income from 35% in 2023 and introducing an interim dividend, it said.

With operating costs a touch below expectations, UniCredit booked slightly higher than foreseen one-off charges of €788m, which it plans to use to offset future headwinds, for example by funding costly voluntary staff exits.

Orcel, who is set to be handed a new three-year mandate in the spring, has bet on one of the sector’s most ambitious payback policies to boost the bank’s share price. To be able to do so, he has focused the bank on activities that maximise returns in relation to the capital buffers deployed to support them.

UniCredit’s core capital stood at 15.9% of risk weighted assets at end-December.

Reuters