UniCredit posts $2.94 billion loss on provisions, charges

Bloomberg

UniCredit SpA reported its biggest loss in more than three years as provisions related to the coronavirus added to the pain of one off costs for job cuts and the writedown of its Turkish unit.
The net loss totalled 2.71 billion euros ($2.94 billion), as loan-loss provisions climbed to 1.26 billion euros, the Milan-based bank said on Wednesday. About 900 million euros was set aside specifically to deal with the impact of the virus. The lender’s main business was resilient in the first quarter, with income from fees and lending beating estimates.
Italy’s economy went into Europe’s longest lockdown a few months after Chief Executive Officer Jean Pierre Mustier set out a new strategy to improve profitability and increase shareholder payouts. UniCredit expects to review its plan by early next year and the CEO said on Wednesday that the bank isn’t setting new targets for 2020 as uncertainty remains too high.
UniCredit can achieve 75% to 80% of its net income targets for next year if the European Union economy rebounds by 10% as many economists expect, Mustier said on a conference call. The bank will decide in the fourth quarter whether to distribute dividends on 2019 earnings.
The CEO, who announced extra provisions to deal with the virus last month, set aside more money than many of his European competitors including Italian rival Intesa Sanpaolo SpA. The bank booked costs as it started the process of eliminating 5,200 existing jobs in Italy through 2023 and took a charge for the sale of a stake in Turkish business Yapi ve Kredi Bankasi AS.
“Core revenues were better, capital was affected by sizeable non-operating items, and it is broadly in line with adjusted consensus,” Citigroup analyst Azzurra Guelfi wrote in a note.
UniCredit was the first big European bank to try to quantify the impact of the coronavirus, setting provisions and predicting a 13% contraction in the eurozone’s economy for the year. Banks across Europe have added billions of euros in provisions and tossed out their earlier forecasts for earnings this year, with many saying they’re unable to provide new estimates.
By holding back more money for soured debt, UniCredit reduced its non-performing loan ratio to 4.9% as of March from 5% at the end of December. The CET1 ratio, a key measure of financial strength rose to 13.44% from 13.09%. Regulators have encouraged banks to tap into their capital buffers to make more money available for lending.
Italy was the first major European economy to impose a virus-related lockdown, with non-essential businesses closed on March 9 and a ban on travel between the country’s provinces. The country, which had some of the highest infection rates and deaths, started the first stage of a gradual re-opening businesses on May 4.
The net loss is the biggest for UniCredit since the fourth quarter of 2016, when the bank posted a loss of 13.6 billion euros on charges related to Mustier’s restructuring.