UniCredit warns of prolonged Covid-19 impact
MILAN: UniCredit SpA forecast next year’s profit could fall short by as much as a quarter of its target even if the euro zone’s economy rebounds strongly from the coronavirus, underscoring the protracted damage from the pandemic.
Successful restructuring efforts at the Milan-based bank have suffered a blow due to Italy’s coronavirus outbreak, one of the world’s deadliest, which is set to plunge the already fragile economy into its worst recession since World War II.
UniCredit chief executive Jean Pierre Mustier told a media briefing uncertainty was too high to give an outlook for the year.
He expressed confidence, however, the bank could reach a €3-3.5 billion profit next year, or 75%-80% of its original target, if the euro zone’s economy rebounded by 10% as expected.
UniCredit reported yesterday a net loss of €2.7 billion ($2.9 billion) in the first quarter, higher than an average forecast for a €1.53 billion loss in an analyst consensus compiled by the bank.
The bank booked extraordinary charges of €3 billion in the quarter, stemming from its decision to reduce its stake in Turkish bank Yapi Kredi and a recent accord with unions on voluntary lay-offs.
Charges linked to the Yapi disposal as well as loan writedowns had also led to a loss in the fourth quarter, though the bank had hit its full-year profit targets and pledged to boost investor returns.
UniCredit said it would present an updated strategic plan at the end of 2020 or early next year.
UniCredit’s caution contrasts with the confident stance of rival heavyweight Intesa Sanpaolo SpA which on Tuesday said its 2020 net profit would be at least €3 billion after virus-related writedowns for half that amount.
Strong trading gains and low loan loss provisions drove a surprise 10% rise in Intesa’s first-quarter net profit.
UniCredit’s first-quarter revenues came in marginally below expectations at €4.38 billion, down 8% from a year earlier, hurt by a sharp drop in trading income amid market turmoil despite higher fees.
Net loan writedowns totalled €1.26 billion after UniCredit warned last month it would book €900 million in additional provisions in the first quarter to factor in an expected 13% contraction in 2020 in the euro zone’s economy.
But it also took a €1.3 billion hit in the quarter to pave the way for 5,200 voluntary layoffs it agreed with unions in April as envisaged by a business plan unveiled in December.
Another €1.7 billion charge related to the disposal of part its Yapi stake, the last step in a string of asset sales completed in recent years by Mustier to beef up capital.
UniCredit said its core capital improved slightly in the quarter to 13.4% of assets.
When the pandemic hit, UniCredit was just emerging from years of painful cost cuts and a successful cleanup that allowed it to reduce impaired loans to below 5% of total lending from 16% when Mustier took over in mid-2016.