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UniCredit resumes cash dividend as management is optimistic about 2018

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UniCredit resumes cash dividend as management is optimistic about 2018

Italy's largest bank, UniCredit SpA, will pay its first cash dividend in five years, as CEO Jean-Pierre Mustier is satisfied with the lender's cleanup and commercial prospects in 2018.

An improving capital base "has allowed us to resume our cash dividend payments, and the board will propose a cash dividend of 32 [euro] cents per ordinary share, in line with our dividend policy," Mustier said during a Feb. 8 earnings call, expressing optimism about the bank's turnaround plan dubbed Transform 2019. "Transform 2019 is just the beginning on which we will build a solid foundation for UniCredit to become a true pan-European winner. I am very encouraged by these results."

UniCredit posted a net profit of €5.47 billion in 2017 after taking a loss of €11.79 billion a year earlier. Shares in the Milan-listed group were up 3% at 1.29 p.m. local time on Feb. 8.

NPEs on track, NII expected to rise

The bank's aim to bring its nonperforming exposure ratio down to 5.4% by 2019 is on track, the CEO said. UniCredit had €48 billion of toxic exposures at the end of 2017, or 10.2% of its book, a 14% decrease on 2016's €56.3 billion. Net of provisions, the lender carried €21.2 billion in dud loans at the end of 2017.

CFO Mirko Bianchi said on the same call that the European economy is picking up pace, driving growth in new-loan volumes and loan collections. UniCredit is gaining market share in mortgages and unsecured personal loans across several markets, he added, projecting that net interest income would remain stable in the first half of 2018 and grow slightly during the second half.

"In our view, short-term interest rates will remain lower for longer and NII pickup will follow a U-shaped instead of V-shaped curve," he said. "We expect NII to remain stable in the first half of 2018 at the average 2017 underlying NII run rate on a like-for-like basis, and to increase in the second half of 2018 thanks to the combined effect of higher volumes and stabilizing customer rates."

Net interest income for 2017 was €10.3 billion at group level. The healthy Italian business, the so-called "core Italy" bank, brought in €3.6 billion of net interest income in 2017, 4.6% less than in 2016.

Mustier expects UniCredit to finish 2018 with a common equity Tier 1 ratio of around 12.2%, down from the year-end 2017 ratio of 13.02%, which took into account the impact of IFRS 9 and disposals related to the Fino nonperforming loans portfolio.