Unicredit hurt as its trading income drops

City A.M. Reporter
ITALY’S UniCredit SpA will keep investing in high-return eastern Europe and won’t curb its investment bank, new chief executive officer Federico Ghizzoni said after sluggish volumes and high tax dragged profit below forecasts.

In his first earnings presentation since taking over on 30 September from Alessandro Profumo, Ghizzoni said he did not plan to reduce the bank’s presence in eastern Europe, nor was he looking to cut investment in its investment bank or in its second-largest market Germany.

Third-quarter net profit at UniCredit, whose network extends into Kazakhstan, reached €334m (£288.9m), above the previous quarter but 15 per cent down from a year ago and below an average analyst forecast of €379m.

“The main reasons for the negative deviations result from weaker-than-expected top-line trends in net commission income and net interest income, as well as the high tax ratio and an increase in minorities,” said WestLB analyst Christoph Bossmann.

“The results are not yet convincing. As long as loan volumes remain subdued and the interest rate environment remains low we forecast the earnings recovery to be delayed,”?he added.

UniCredit ruled out a capital increase as it said that “cumulative retained earnings (by 1 January 2013) will be sufficient to offset the full impact of Basel ... even assuming no phase-in and conservative assumptions on mitigation.”

The bank was forced to tap shareholders and to scrap cash dividends during the credit crisis, angering Italian investors who blamed Profumo’s risk-taking for the bank’s woes. UniCredit said its core Tier 1 ratio, a closely-watched sign of financial strength, had inched up to 8.61 per cent.