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UniCredit lifted by government bailout of weaker rivals, CEO says


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According to Market Intelligence, April 2023

UniCredit lifted by government bailout of weaker rivals, CEO says

The Italian government's intervention to stabilize the banking sector has benefited all domestic banks by causing their cost of risk to come down, said Jean-Pierre Mustier, the CEO of UniCredit SpA, the country's largest lender by assets.

The government has spent billions on smoothing the collapse of Banca Popolare di Vicenza SpA and Veneto Banca SpA and to take majority ownership of Banca Monte dei Paschi di Siena SpA.

"Thanks to the proactive intervention of the Italian government to solve the issues of a few systemic banks, the risk premium for the Italian banking system has been significantly reduced. We welcome these actions," Mustier said on a conference call following second-quarter earnings.

UniCredit's cost of risk fell to 50 basis points between April and June 2017, from 60 basis points in the first quarter and 77 basis points in the second quarter of 2016.

"As a consequence, we revise our full 2017 year [cost of risk] guidance to the low 60s but confirm the 2019 target of 49 basis points," the CEO said, after forecasting in May that cost of risk at the end of 2017 would be 65 basis points.

Mustier added that he expected cost of risk to increase in central and eastern Europe in the second half, after it dipped to 53 basis points in the second quarter from 122 basis points in the first quarter.

UniCredit's asset quality broadly improved over the period thanks to improvements in the wider European economy and a series of toxic loan sales.

The gross amount of nonperforming exposures in the group, including some restructured loans, was €53 billion at the end of June, a roughly 30% drop from a year earlier, and equivalent to 11% of total exposures. In Italy, however, soured assets were up year over year to 6.6% from 6.1%, although down from the prior quarter, when the figure was 7.0%.

UniCredit said it sold €1.8 billion of gross NPEs in the first half, including €1.5 billion in the second quarter. On Aug. 1, it finalized the sale of a majority stake in the €17.7 billion Project Fino nonperforming loan portfolio, part of the sweeping overhaul Mustier announced in late 2016 that also included tapping investors for €13 billion in new equity at the beginning of 2017.

The bank booked €945 million in second-quarter net profit, up from €916 million a year before, and its shares were up nearly 6% as of just before 2 p.m. Milan time Aug. 3.

Meanwhile, a legal change in Austria could allow UniCredit to use funds it set aside during a restructuring of its local unit in 2016. Austria passed a law in 2016 that led to the trebling of the bank's costs related to transferring pensions to the state system, but the rule may be rescinded, said CFO Mirko Bianchi.

"In the context of the transfer of the pension obligation to the state, we were recently informed that the federal administrative court endorsed our view that the law is unconstitutional. We fully provisioned for a total amount of approximately €800 million," Bianchi told the audience, adding that if the formal decision comes in favor of the bank, "a partial release of this provision may occur in the future."