UniCredit beats third-quarter earnings estimates and maintains 2023 outlook

The logo of the Italian international banking group UniCredit is on the facade of the group’s headquarters in the Porta Nuova district, as seen from the Palazzo Lombardia on September 29, 2023 in Milan, Italy.

Emanuele Cremaschi | Getty Images News | Getty Images

Italy’s UniCredit beat third-quarter profit forecasts on Tuesday as higher interest rates boosted revenue, but maintained its full-year profit target and said it needed time to decide how best to capitalize on “extraordinary” growth this year could be used

Higher borrowing costs have driven record profits for banks in recent quarters, but uncertainty has increased as geopolitical risks add pressure to the economy through persistently high inflation and rapidly shrinking loan volumes.

Unicredit, Italy’s only bank with global systemic importance, said net profit was 2.3 billion euros ($2.5 billion) in the three months to September, well above the bank’s consensus forecast of 1.9 billion euros and an increase of 36% compared to a year ago.

Shares rose more than 2% in early trading. Revenue from the difference between loan and deposit interest, on which Italy unexpectedly imposed a one-time tax in August, rose 45% year-on-year.

After spooking investors in Italian banks with the extraordinary levy, Italy backed down and gave lenders the option to put money aside as reserves instead of paying it out.

UniCredit's CEO explains why the company raised its 2023 forecast

UniCredit, the first Italian bank to report its third-quarter results and make an official decision on the tax, said it had set aside 1.1 billion euros in reserves.

Most Italian banks, including market leader Intesa Sanpaolo, are expected to forego paying the tax, which could harm shareholders and instead bolster capital, sources told Reuters.

UniCredit has slightly raised its revenue forecast for 2023 due to the interest rate hike, but has kept its profit and investor premium targets unchanged.

“We are examining all the options available to us and therefore give you a new forecast for the final result. The distribution is premature, but that does not mean these numbers will remain the same,” said CEO Andrea Orcel in a media call.

UniCredit forecasts a net profit of at least 7.25 billion euros for 2023 and will pay out at least 6.5 billion euros in dividends and share buybacks.

The company confirmed its distribution plans on Monday when it announced the purchase of a 9 percent stake in Alpha Bank from the Greek bank rescue fund and the merger of its Romanian subsidiary with that of Alpha.

Although provisions for loan losses are still extremely low, they more than doubled in the quarter. In Germany the loan volume stagnated, in Italy it fell by 3%. The reduction in risk-weighted assets (RWA) helped core capital rise to 17.2% of RWA from 16.6% at the end of June.

Taking into account the decision to buy back shares with a profit of 2.5 billion euros in 2023, which UniCredit plans to do before the end of the year, it would be 16.3%.

It is awaiting regulatory approval as shareholders gather on Friday to vote on the plan.

Orcel, which took over the company in 2021, has adopted a capital-light model to maximize profits relative to the capital deployed to support the businesses.

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