Unicredit returns to profit, revises the coupon (increased) but disappoints expectations on results and announces a revision of the financial targets of the business plan. The stock goes up and down: while waiting for the accounts, it runs up to above 1%, then retraces and collapses in negative territory of 1,7% to finally close with a fractional increase at +0,58%.
LOAN PROVISIONS UP 67,7%
In Piazza Cordusio, a 2012 of great cleanup of the balance sheets ends, as well as for other banks starting from Intesa, marked by the increase in the coverage of non-performing loans to 44,8% in December 2012 from 42,7% in September 2012. In Italy alone, coverage is 43,4%. An increase, which underlines iCEO Federico Ghizzoni, "was almost entirely a management decision and did not derive from specific requests from Bank of Italy" which, after analyzing a sample of our portfolio, "required a very marginal increase". Provisions for loans accounted for a good 9,6 billion euro (+67,7% on 2011), 4,3 billion in the fourth quarter alone. All this against stable revenues (at 25 billion, +0,1% per annum) but almost in line with the consensus which had set the bar slightly higher, at 25,6 billion. The slowdown came in the fourth quarter when revenues stood at 5,7 billion (-5,6% on the same period of 2011) compared to the expected 6,07 billion. In Italy, 2012 revenues rose by 2,4% on 2011 to 10,115 billion euro, operating costs fell to 5,515 billion (-7,1% on 2011) and the gross operating margin grew to 4,6 billion (+ 16,7%). However, provisions rose by 76,7% to 6,997 billion and resulted in a net operating loss of 2,397 billion. The group thus closed the year with a profit of 865 million against the loss of 9,2 billion in 2011, however lower than market expectations which indicated 1,24 billion. In the fourth quarter of last year alone, UniCredit suffered a much higher loss than analysts' expectations, 553 million against expectations of a loss of 173 million.
HERE COMES THE COUPON OF 9 CENTS…
In this context, Piazza Cordusio has decided to distribute a coupon of 9 cents per share against 6 expectations and above all after a dry 2011 and a 2010 at 3 cents. Of course, the dividend is a tangible sign of confidence, in a period in which Bankitalia asks to stay alert (instructing those who do not make profits or do not comply with capital requirements not to distribute coupons and bonuses) and we are moving towards the Basel 3 transition And Ghizzoni is keen to clarify it. The board's decision to propose to the shareholders' meeting the distribution of a dividend of 9 cents per share "wants to underline the confidence we have in UniCredit's ability to create recurring value for shareholders", said the CEO, explaining that "today UniCredit is very stronger than a year ago from a capital, balance sheet and liquidity perspective and can look forward to the challenges of 2013 with confidence.” In terms of capital solidity, the group has a Core Tier 1 at the end of 2012 according to Basel 2,5 of 10,84% and a Common equity tier, according to Basel 3, of 9,2%. For 2013 it confirms a minimum common equity tier 1 level of 9%.
…TOGETHER WITH THE REVIEW OF FINANCIAL TARGETS
But the "exceptional difficulties of the economic context" will cause the financial targets to be reviewed. A note from the group notes that, forecasting persistently low interest rates throughout 2013, a scarcity in the demand for loans and the cost of new wholesale loans higher than the cost of maturing loans, Unicredit expects the margin there is a downward trend compared to 2012, which could be offset by repricing and restructuring activities. Furthermore, he notes, new cost management initiatives have been put in place with the minimum objective of confirming 2012 costs, despite the planned investments. And Ghizzoni launches the challenge on unemployment by announcing that he intends to hire 500 young people in the next 18 months.
At the moment it is not known when the new targets will be communicated: Unicredit (and investors) are navigating on sight. “With the markets still so volatile, UniCredit is unable to indicate today a date for the revision of the financial targets of the plan – said Ghizzoni, in the conference call to present the 2012 results – We don't have a date for the new targets. I think the markets will continue to be very volatile and therefore it makes no sense to bring yet another plan. We have to see how the macroeconomic context goes”. And politics. “2013 will be a complicated year also due to political uncertainty. The second part of the year will be better, the first less so”, Ghizzoni later said in the press conference, specifying that “in the first two months of 2013 positive data arrived in assets under management, in private banking, in Fineco and furthermore the commissions. On the cost of risk, the first two months of the year confirm our expectation of a gradual decline”. And the return of the Lrto will also depend on political certainty: “There is the possibility of returning the Ltro, the famous political certainty was expected. There isn't now so let's postpone it but not indefinitely. However, we can do it at any time without impacting the group's liquidity".
