UniCredit ups 2022 profit goal after Q3 earnings beat

By Valentina Za

MILAN (Reuters) -Italy’s No.2 bank UniCredit on Wednesday raised its 2022 profit goal above 4.8 billion euros ($4.8 billion), helped by higher interest rates and lower loan loss provisions that also drove quarterly earnings above forecasts.

UniCredit’s business model, less geared towards fee-yielding businesses after it sold its crown jewels in the past to raise cash, is less affected than that of Italian rival Intesa Sanpaolo by the current market turmoil, while it stands to benefit more from the higher rates.

UniCredit posted a profit for July-September of 1.71 billion euros, well above analysts’ consensus forecast of 1.00 billion euros provided by the bank.

UniCredit had already improved its 2022 guidance in July, indicating a net profit target of around 4 billion euros.

The bank, which has failed to extricate itself from Russia where it runs a top-15 lender, said it had reduced its cross-border exposure to the country to 3.1 billion euros in the quarter.

Quarterly earnings were also boosted by much higher than expected trading income, which UniCredit said had been helped by companies’ demand for hedging products.

With the Italian economy heading towards a recession amid Europe’s energy crisis, analysts had expected more than five times the 84 million euros in loan loss provisions UniCredit booked in the quarter.

Chief Executive Andrea Orcel, however, said that writebacks had helped the bank to offset a 30% increase in generic provisions it booked in the quarter to account for credit risks from higher rates, inflation and energy prices.

The default rate had remained very low in the period at 0.8%, finance chief Stefano Porro said.

UniCredit, which under former UBS investment banking chief Orcel is pursuing a strategy focused on capital generation, said its core capital ratio stood at 15.41% at the end of September, compared with 15.73% in June.

The erosion reflects a second share buyback UniCredit is carrying out as it hits a goal of returning 3.75 billion euros of last year’s earnings to shareholders.

“The momentum in our 2022 results … creates a solid base for a distribution of at least the same as for 2021, pending fourth quarter dynamics, supervisory and shareholder approval, Orcel told a media call.

($1 = 1.0047 euros)

(Reporting by Valentina Za Editing by Agnieszka Flak and Mark Potter)