UniCredit returns to profit as bad loans fall
UniCredit returned to profit in the first quarter of the year and said bad loans had fallen for the first time since 2008 as the Italian economy shows the first signs of recovery.
Italy's biggest bank by assets beat analyst expectations with a net profit of 712 million euros ($979 million), up nearly 60 percent on a year earlier and compared with a consensus forecast of 550 million euros distributed by the bank.
UniCredit had posted a shock 14 billion-euro loss for 2013, the biggest ever for an Italian bank, after sweeping clean its balance sheet in preparation for a sector-wide health check by European regulators. In 2013 alone, the bank booked huge loan writedowns of 13.7 billion euros.
UniCredit's strategy to aggressively write down the value of its soured loans in 2013 appeared to pay off in the first quarter, with bad loans falling for the first time in six years, by 1.3 percent quarter-on-quarter.
Charges against loan defaults - which are in any case seasonally weaker at the beginning of the year - fell 28.5 percent from a year earlier.
And new loans in its Italian home base - where UniCredit earns around 40 percent of its revenues - rose 63 percent from a year earlier after years of tight credit availability and weak loan demand.
"This allows us to look at the future with confidence" CEO Federico Ghizzoni said in a statement.
Italian banks have been struggling to keep a lid on mounting bad debts that have eaten into their capital base as the euro zone's third biggest economy grappled with the worst recession in 70 years.
But while big banks UniCredit and Intesa Sanpaolo were able to absorb the full impact of the loan writedowns without additional fundraising, nine of the 15 banks in Italy being checked out by European regulators, mostly mid-sized lenders, have announced capital increases amounting to 11 billion euros.
One of those planning to tap investors for cash, Monte dei Paschi di Siena , on Monday posted a net loss of 174 million euros.
The lender, the only Italian bank to have been bailed out by taxpayer money, said the loss was mostly due to higher costs related to the planned reimbursement of the 4.1 billion euros it received last year.
But unlike UniCredit, its stock of bad loans kept rising in the first quarter - by nearly one billion euros since the end of 2013 to 22 billion euros. And loan loss charges only fell marginally, by 1.3 percent, from a year earlier, showing weaker Italian banks are far from having turned the corner.
The lender increased the size of a planned right issue due to be launched in June to 5 billion euros from 3 billion euros previously pencilled in to plug any hole arising from the European asset review. Bankers have told Reuters that the bank was concerned about the level of bad loans coverage in the run up to the EU exam.
"For us 2014 is a turning-point year, but it has not happened yet. We expect things to improve in the second half of the year, for now it's too early to expect anything major," Monte dei Paschi Chief Financial Officer Bernardo Mingrone told analysts.
(Reporting by Silvia Aloisi. Editing by Jane Merriman and David Evans)