UniCredit Quarterly Beyond Expectations, with the net profit that literally tears up analysts’ estimates, even the most optimistic ones, in some cases doubling them. The UCG stock reacts to Piazza Affari with a jump of more than + 6%.
The bank led by Andrea Orcel officially kicks off the season of Italian bank accounts for the second quarter, informing shareholders and the market also of some crucial issues, such as that represented by theexposure to Russia but also that ofexposure to Italian BTPs and debt securities, at a time when analysts are once again talking about the doom loop in Italy that has become orphaned by Draghi. Doom loop means a deadly embrace between the banks and the government bonds of their respective nation.
The UniCredit quarterly, as well as those of other banks that will arrive in the next few days, comes in the midst of worries on the trend of BTP rates and therefore of the BTP-Bund spread, yet another government crisis that culminated last week in resignation of Mario Draghi, and following the double announcement of the ECB, which has just raised euro area interest rates by 50 basis points (thus ending the era of negative rates), also launching the TPI anti-spread shield.
In view of the early elections of 25 September, l‘Italy is increasingly observed special and, even before the ECB-Day and before the resignation of Mario Draghi, Barclays wrote in a note that the fragmentation risk (spreads and BTP rates) for Italian banks was already materializing.
The research division of the UK banking giant pointed out just how, in the case of UniCredit, the spread on the CDs had widened significantly, rising to 379 basis points on 18 July, compared to 245 basis points at the end of the first quarter of 2022 and an average of 180 basis points in 2021. This, against a BTP-Bund spread which stood on 18 July at 217 basis points compared to a 2021 average of 109 basis points.
UniCredit: second quarter net profit over 2 billion, smashing estimates
But let’s proceed in order.
- The good news is the leap in UniCredit’s net profit, which amounted to € 2.010 billion in the second quarter of 2022, up sharply on a quarterly basis and up by 94.5 per cent on an annual basis. UniCredit’s net profit after AT1 and Cashes was estimated by Equita SIM at 830 million, and at 908 million by consensus, compared to 1.034 billion in the second quarter of 2021, and compared to 247 million in net profit in the first quarter of 2022. Barclays’ estimates of UniCredit’s net profit were 1.133 billion, while Banca Akros expected a net profit of 980 million for the second quarter.
- Excluding the impact of Russia, net profit of the Group amounted to € 1.5 billion, with robust organic generation of capital of 67 basis points in the quarter.
- Net revenues rose to € 4.8 billion in the second quarter, up 28.1% quarterly and 18.7% year-on-year. Total revenues also stood at € 4.8 bn, down 4.7 per cent Q / Q and up 8.9 per cent y / y. The total turnover of UniCredit was expected from Equita SIM at 4.492 billion, compared to 4.493 billion of the consensus. Barclays had forecast total revenue of € 4.488 billion, while Banca Akros analysts had forecast total revenue for UniCredit in the second quarter of the year of € 4.5 billion.
- Excluding Russia, net revenues amounted to € 4.4 billion, up 12.5 per cent year-on-year, reflecting high risk-adjusted profitability in all geographic areas, supported by growth in net interest income (‘NII’) which stood at to € 2.3 billion, and the decrease in loan loss provisions (‘LLP’) which reflects the solid asset quality.
- Excluding Russia, operating costs are reduced by 4.4 one hundred year on year, confirming the group’s discipline in managing the cost base while guaranteeing the generation of revenues.
- UniCredit reported in the second quarter of the year an interest margin of €2.5 billion, up 8% Q / Q and up + 13.3% YoY. UniCredit’s interest margin was expected by Equita SIM at 2.338 billion, up 2% on a quarterly basis and 6% on an annual basis, to a value higher than the 2.311 billion expected by the analysts’ consensus. UniCredit’s net interest margin was expected by Barclays analysts at a similar value of $ 2.344 billion in the second quarter of the year.
- UniCredit’s cost / income ratio stood at 49.3%, up by 2.6 percentage points on a quarterly basis but down by 6.5 percentage points on an annual basis.
- UniCredit’s cost of risk (CoR) was nil, down 114bps Q / Q and down 33bps Y / Y, and was 10bps excluding Russia.
- UniCredit’s CET1 ratio stood at 15.73 per cent, up 173bps Q / Q and up 22bps y / y. Andrea Orcel’s bank specified that UniCredit’s capital position is among the leaders of the sector.
- UniCredit also reported profitability above cost of capital with high risk-adjusted returns across all geographies and Group RoTE of 13.0 per cent in 2Q22, excluding Russia.
- Group gross impaired exposures amounted to € 13.9 bn, down 21.8 per cent Q / Q and down 35.3 per cent y / y.
- The ratio of gross impaired loans to total gross loans of the Group was 2.9 per cent in the second quarter of the year, down by 0.8 pp Q / Q and down by 1.8 pp y / y.
- Group net non-performing exposures stood at € 7.0 bn, down 17.7 per cent Q / Q and down 23.7 per cent y / y.
- The ratio of net non-performing loans to total net loans of the Group: 1.5 per cent, down by 0.3 pptrim / quarter and down by 0.6 pp y / y, with a hedging ratio (on non-performing exposures) equal to 50.0 per cent, down 2.4 pp Q / Q and down 7.7 pp y / y.
- Group gross non-performing loans amounted to € 3.4 bn, down 30.0 per cent Q / Q and 52.9 per cent y / y.
- Group gross unlikely to pay (‘UTP’) amounted to € 9.8 bn, down 20.3 per cent Q / Q and down 27.2 per cent y / y.
UniCredit announces a further reduction in exposure to Russia
UniCredit communicated with the publication of the quarterly report referring to the second quarter of 2022 a further reduction in exposures linked to Russia, adding that it is engaged in a progressive de-risking. To be precise, the exposure to Russia was reduced overall by approximately € 2.7 billion, through proactive and disciplined actions, while Russia’s Risk Weighted Assets (‘RWAs’) were reduced by approximately € 2.7 billion.
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UniCredit, Orcel’s comment. Improve guidance 2022
As a result of robust financial results and the more favorable interest rate environment, UniCredit has improved its financial guidance for 2022 with expected revenues in excess of € 16.7 billion and net profit of approximately € 4.0 billion, excluding Russia. The financial ambitions of the ‘UniCredit Unlocked’ 2024 Plan of organic generation of average capital of 150 basis points per year, incremental net revenues of approximately € 1.1 billion and RoTE of approximately 10.0 percent have been confirmed.
Like this Andrea Orcel, Chief Executive Officer of UniCredit SpA, commented on the bank accounts for the second quarter:
“UniCredit continued to perform well in the second quarter, achieving the best performance for the first half of the past 10 years, driven by growing profitability, solid organic generation of capital and reduction of the cost base despite the impact of inflation. Our CET1 ratio further strengthened to 15.73%, reflecting the excellent asset quality, with a cost of risk of only 10 basis points, excluding Russia. On the back of our excellent performance and a more favorable interest rate environment, we have improved our guidance for 2022, an important step in the implementation of the three-year plan. The global economy faces unprecedented challenges and great uncertainty. It is in times like these that the constant focus on the implementation of our ‘UniCredit Unlocked’ strategy proves particularly crucial. UniCredit rests on solid foundations, which place us in a good position to go through whatever macroeconomic situation awaits us. Making sure we remain solid and resilient will allow us to fulfill our responsibilities towards customers, communities and all stakeholders, supporting them in facing the challenging times that lie ahead “.
UniCredit sovereign exposures: the numbers towards Italian BTPs and securities
With regard to the Sovereign exposures held by the Group as at 30 June 2022, the book value of the exposures of this type represented by ‘debt securities’ amounts to € 113,046 million (of which € 106,772 million classified in the banking book), approximately 82 for one hundred of which concentrated on eight countries including Italy (BTPs and other government bonds), with € 41,213 million, represents a share of over 36 percent of the overall total.
In some footnotes, UniCredit explains that the disclosure relating to sovereign exposures refers to the consolidation area of the Consolidated Half-Year Financial Report of UniCredit at June 30, 2022, which is determined on the basis of the IAS / IFRS standards. Sovereign exposures include bonds issued by central and local governments and government entities as well as loans granted to them. For the purposes of this risk exposure, on the other hand, positions held by Group companies classified among ‘assets held for sale’ as at 30 June 2022 are excluded; any positions held through ABS. Again, the so-called banking book includes financial assets designated at fair value, those mandatorily valued at fair value, those valued at fair value with an impact on comprehensive income and those valued at amortized cost. The eight countries on which UniCredit’s sovereign exposures are concentrated are Italy; Spain, Japan, Germany, United States of America, Austria, France, Romania.