FT – UniCredit Q4 results hit by bad loan provisions

UnicreditUniCredit, Italy’s largest bank by assets, has reported a larger than expected loss in the fourth quarter of 2012 as it ramped up its provisions against bad loans in the face of a deteriorating economy in Italy.

The figures from UniCredit, which operates in more than 20 European countries, come as Italy’s nearly two-year-old recession shows no sign of easing and political instability from last month’s inconclusive national elections have raised concerns about the prospect of recovery.

Like UniCredit, Italian banks en masse are raising provisions to cover mounting bad loans as the small and midsized businesses that make up the backbone of the Italian economy struggle to survive.

UniCredit said it had revised down some of its financial targets for this year, in particular net interest income, citing concerns about the challenging macroeconomic environment, persistently low interest rates and weak loan demand.

As a way to optimise capital distribution within the group, UniCredit said it had proposed an extraordinary dividend of €1bn from its better performing German subsidiary. UniCredit, which has extensive operations in central and eastern Europe, also confirmed the sale of its Kazakh banking business as part of a streamlining of its operations in the region.
The bank’s core tier one capital ratio stood at 10.8 per cent. UniCredit said it would propose a dividend of 9 cents per share for 2012.

Citi bank analysts said the rise in loan loss provisions and the issue of the extraordinary dividend as a means of improving the group capital distribution was positive. “But the market will question the core revenue weakness and still challenging outlook”.
“We are prepared for the upcoming challenges in 2013,” Federico Ghizzoni, chief executive, said in a statement. “We will actively pursue our efforts to boost profitability”.

Fourth-quarter revenues fell 6 per cent year-on-year to €5.7bn. It made a gross operating profit of €2bn for the quarter, down 12 per cent year-on-year. Operating costs fell 3 per cent as Mr Ghizzoni sought to boost profitability through savings, asset disposals and streamlining its eastern European operations.

The bank said it had made a group net loss of €553m compared with a profit of €114m in the quarter a year ago. It booked €4.6bn of additional loan loss provisions in the fourth quarter.
UniCredit said asset quality was negatively affected by the unfavourable macroeconomic environment, especially in Italy. As a result, in Italy it had boosted its coverage ratio, an indication of a company’s ability to meet its financial obligations, to 43.4 per cent, the highest level in Italy, according to the bank.

It said it was taking action to minimise taking more bad loans on to its books through “stricter lending criteria, reducing default rates of new business and reducing riskier asset classes”.

The bank said gross non-performing loans rose 3 per cent quarter on quarter.
Shares in UniCredit closed up slightly at €3.83.


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