UniCredit leads Italian banks' Q1 earnings beats

Italy's largest banks are upbeat about their prospects for 2026 after a first quarter in which all five of the country's largest lenders surpassed profit expectations.

UniCredit SpA led the pack with an almost 17% year-over-year increase in profit to €3.17 billion. This beat analysts' consensus estimates by 17.4%, the biggest surprise among the five lenders, according to Visible Alpha data. Revenue increased 4.9% to €6.87 billion, beating the consensus by 3.1%.

The better-than-expected performance of UniCredit and its peers in the quarter adds to a strong run of recent results. Italian banks have been among the biggest beneficiaries of higher eurozone interest rates, while a rare period of political stability in the country has encouraged borrowers.

"Because of the strong start, the strength of our business, our lines of defense and the ability of our people to perform across different macro scenarios, today we're not only confirming our ambition, we're upgrading it," UniCredit CEO Andrea Orcel said during the bank's first-quarter earnings call.

Intesa Sanpaolo SpA, Banca Monte dei Paschi di Siena SpA (BMPS) and BPER Banca SpA posted similarly strong yearly profit growth in the first quarter, helping to drive an 11.4% aggregate annual increase among the five lenders. Banco BPM SpA was the only major Italian bank to suffer a year-over-year contraction in profit in the quarter, falling 9.2% to €463 million.

Strong revenue growth was the main driver of profit performance. Aggregate revenue increased 11.8% to €19.29 billion, with BPER the only bank to miss revenue expectations.

BPER's and BMPS' recent acquisitions and integration of Banca Popolare di Sondrio SpA (BPSO) and Mediobanca Banca di Credito Finanziario SpA, respectively, were significant drivers of their earnings growth in the quarter.

"The integration of Banca Popolare di Sondrio allows us to further strengthen our focus on asset-gathering activities and will ensure the exploitation of further commission-related potential,” BPER CEO Gianni Franco Papa said.

The boost from BPER's and BMPS' recent acquisitions to aggregate earnings masked a quarterly contraction in net interest income (NII) at those banks not affected by M&A. NII — the difference between what banks earn from interest on lending and pay for funding — is the banks' largest source of revenue.

BPM suffered the largest quarterly NII decline, at 2.1% to €751.4 million. Intesa's NII fell 1.3% sequentially to €3.64 billion, and UniCredit, which derives a significant portion of its revenue from outside Italy, posted a dip of 1.1% to €3.59 billion.

Still, the banks expect rising interest rates due to the impact of the Middle East war to arrest the decline in NII. The rates at which eurozone banks lend to each other, known as the euro interbank offered rate (Euribor), have increased significantly since the war began in February. The European Central Bank is widely expected to raise interest rates at its next meeting in June.

"We definitely are seeing positive signals and expect to have results delivering a positive trend [on NII] versus the first quarter of this year," BPM CFO Edoardo Maria Ginevra said.

Concerns about the impact of the conflict on energy prices and economic growth across Europe contributed to a higher-than-expected cost of risk — provisions for bad loans — in the first quarter at all five banks.

"Even if the situation deteriorates, we do not expect a recession during 2026," Intesa CFO Luca Bocca said. "So, on cost of risk, we are very, very comfortable."

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