UniCredit raises 2021 profit goal after strong quarter

By Valentina Za

MILAN (Reuters) – Italy’s second-biggest bank UniCredit raised its 2021 profit and revenue goals on Thursday, strengthening the hand of its new CEO after he walked out of talks to buy troubled rival Monte dei Paschi (MPS).

Italy’s only bank that regulators deem of global systemic relevance, UniCredit last year lost its domestic leadership to Intesa Sanpaolo, which snapped up mid-tier peer UBI in an unsolicited takeover to secure a fifth of the market – twice the share of UniCredit.

Some analysts had seen a deal for state-owned MPS as a way to regain ground, but UniCredit abandoned the talks on Sunday.

On Thursday, UniCredit reported net profit of 1.06 billion euros ($1.2 billion) for the third quarter, above analysts’ average forecast of 838 million euros, boosted by higher revenues and shrinking loan losses.

After hiring as its CEO in April veteran dealmaker Andrea Orcel, the former investment banking chief at UBS, UniCredit said it would present a new business plan on Dec. 9 that will have digitalisation as a key plank.

The investor day has been held back by the discussions with Italy’s Treasury over MPS.

In entering exclusive talks in July, Orcel set strict terms, which led to negotiations collapsing when the parties could not agree on the bits of MPS that UniCredit would buy and their value – with sources pointing to a valuation gap of up to 3.5 billion euros.

UniCredit made no mention of MPS in its earnings statement and did not hold a media call, as it used to under previous CEO Jean Pierre Mustier.

“I know that there is a need for greater detail as to the direction and shape of our future,” Orcel said in an internal message seen by Reuters, promising to personally engage with staff on strategy after Dec. 9.

Shares rose 0.74% in mid-morning trade, outperforming a flat sector.

‘START OF OUR JOURNEY’

UniCredit’s revenues totalled 4.44 billion euros in July-September, a surprise 1.9% annual rise and also unexpectedly up 0.8% on the previous quarter, when easing COVID-19 restrictions had driven an exceptional rebound in fees.

While down from the previous quarter, fees rose 12.5% year-on-year, helped by a pick-up in payment and card services over the summer, with debt and capital markets activity also contributing.

Net interest income, UniCredit’s Achilles heel amid negative interest rates, rose 3.1% from March-June, helped by one-off items but also growing volumes, especially in eastern Europe, despite ongoing competitive pressure driving down rates.

“This is phenomenal progress in our performance, but we are only at the start of our journey,” Orcel said.

After Mustier sold the crown jewels to raise cash to fix its balance sheet, UniCredit has suffered more than Intesa due to negative rates because it lacks the rival’s fee-earning businesses like asset management and insurance.

UniCredit said it now expected its 2021 underlying net profit to be above 3.7 billion euros, versus a previous forecast of more than 3 billion.

Revenues are projected at around 17.5 billion euros, from an estimate of around 17.1 billion three months ago.

“The market expected a good set of results, nevertheless we see them as positive for the stock, given the trends in core revenues and improved guidance,” Citi analysts said in a note.

UniCredit also further reduced its forecast for loan losses this year after provisions in the quarter fell a larger-than-expected 60% from a year earlier to 297 million euros.

Under Mustier, who was ousted after clashing with the board over strategy, UniCredit had made hefty provisions against future pandemic-driven credit losses, but the extent of the damage on businesses is yet to emerge amid residual support measures in countries such as Italy.

($1 = 0.8618 euros)

(Reporting by Valentina Za; Editing by Agnieszka Flak and Mark Potter)

By Valentina Za

MILAN (Reuters) – Italy’s second-biggest bank UniCredit raised its 2021 profit and revenue goals on Thursday, strengthening the hand of its new CEO after he walked out of talks to buy troubled rival Monte dei Paschi (MPS).

Italy’s only bank that regulators deem of global systemic relevance, UniCredit last year lost its domestic leadership to Intesa Sanpaolo, which snapped up mid-tier peer UBI in an unsolicited takeover to secure a fifth of the market – twice the share of UniCredit.

Some analysts had seen a deal for state-owned MPS as a way to regain ground, but UniCredit abandoned the talks on Sunday.

On Thursday, UniCredit reported net profit of 1.06 billion euros ($1.2 billion) for the third quarter, above analysts’ average forecast of 838 million euros, boosted by higher revenues and shrinking loan losses.

After hiring as its CEO in April veteran dealmaker Andrea Orcel, the former investment banking chief at UBS, UniCredit said it would present a new business plan on Dec. 9 that will have digitalisation as a key plank.

The investor day has been held back by the discussions with Italy’s Treasury over MPS.

In entering exclusive talks in July, Orcel set strict terms, which led to negotiations collapsing when the parties could not agree on the bits of MPS that UniCredit would buy and their value – with sources pointing to a valuation gap of up to 3.5 billion euros.

UniCredit made no mention of MPS in its earnings statement and did not hold a media call, as it used to under previous CEO Jean Pierre Mustier.

“I know that there is a need for greater detail as to the direction and shape of our future,” Orcel said in an internal message seen by Reuters, promising to personally engage with staff on strategy after Dec. 9.

Shares rose 0.74% in mid-morning trade, outperforming a flat sector.

‘START OF OUR JOURNEY’

UniCredit’s revenues totalled 4.44 billion euros in July-September, a surprise 1.9% annual rise and also unexpectedly up 0.8% on the previous quarter, when easing COVID-19 restrictions had driven an exceptional rebound in fees.

While down from the previous quarter, fees rose 12.5% year-on-year, helped by a pick-up in payment and card services over the summer, with debt and capital markets activity also contributing.

Net interest income, UniCredit’s Achilles heel amid negative interest rates, rose 3.1% from March-June, helped by one-off items but also growing volumes, especially in eastern Europe, despite ongoing competitive pressure driving down rates.

“This is phenomenal progress in our performance, but we are only at the start of our journey,” Orcel said.

After Mustier sold the crown jewels to raise cash to fix its balance sheet, UniCredit has suffered more than Intesa due to negative rates because it lacks the rival’s fee-earning businesses like asset management and insurance.

UniCredit said it now expected its 2021 underlying net profit to be above 3.7 billion euros, versus a previous forecast of more than 3 billion.

Revenues are projected at around 17.5 billion euros, from an estimate of around 17.1 billion three months ago.

“The market expected a good set of results, nevertheless we see them as positive for the stock, given the trends in core revenues and improved guidance,” Citi analysts said in a note.

UniCredit also further reduced its forecast for loan losses this year after provisions in the quarter fell a larger-than-expected 60% from a year earlier to 297 million euros.

Under Mustier, who was ousted after clashing with the board over strategy, UniCredit had made hefty provisions against future pandemic-driven credit losses, but the extent of the damage on businesses is yet to emerge amid residual support measures in countries such as Italy.

($1 = 0.8618 euros)

(Reporting by Valentina Za; Editing by Agnieszka Flak and Mark Potter)