UniCredit Delivers Larger-than-Expected Q3 Profits Along with 2023 Outlook

UniCredit has marginally increased its revenue projections for the year 2023 while anticipating a minimum net profit of 7.25 billion euros this year.

On Tuesday, October 24, Italy’s UniCredit announced its Q3 2023 results with larger-than-expected profits. The boost in profits comes amid high rates that boosted the company’s income. Besides, UniCredit is also holding up on its full-year profit goals adding that it would take more time to decide on how to capitalize this year’s “exceptional” earnings growth.

Unicredit, the only Italian bank considered to have global systemic relevance, reported a net profit of €2.3 billion ($2.5 billion) in the third quarter, significantly surpassing the bank’s own forecast of €1.9 billion and representing a 36% increase from the previous year.

In response to this positive financial news, Unicredit’s shares saw a rise of over 2% during early trading. The income derived from the interest rate spread between loans and deposits, which was subject to an unexpected one-time tax imposed by Italy in August, increased by 45% year-on-year.

Higher borrowing costs have driven record profits for banks in recent quarters. However, increased uncertainty due to geopolitical risks, coupled with persistently high inflation and diminishing loan volumes, is now affecting the economic landscape.

The Italian government initially alarmed investors in Italian banks with the introduction of this exceptional tax. However, it later reversed its decision, allowing banks to establish reserves instead of making direct tax payments.

UniCredit, the inaugural Italian bank to announce its third-quarter earnings and make a formal determination regarding the tax, has opted to allocate 1.1 billion euros as reserves.

It is anticipated that the majority of Italian banks, including the leading market entity, Intesa Sanpaolo, will follow suit by choosing not to remit the tax. Instead, they are likely to bolster their capital reserves, a strategy that has been suggested by insider sources cited by Reuters.

UniCredit Raises 2023 Revenue Outlook

UniCredit has marginally increased its revenue projection for 2023, primarily attributed to the positive impact of interest rates. However, the bank has maintained its existing profit and investor incentive targets without alteration.

UniCredit anticipates a minimum net profit of 7.25 billion euros in 2023, with plans to distribute at least 6.5 billion euros through dividends and share buybacks. Speaking on the development, UniCredit CEO Andrea Orcel said:

“We’re reviewing all the options that we have and therefore giving you a new guidance for the bottom line and distribution is premature, but that does not mean that those numbers will remain the same”.

In its announcement on Monday, UniCredit confirmed its distribution strategy following the purchase of a 9% stake in Alpha Bank from Greece’s bank bailout fund and the merger of its Romanian unit with Alpha’s.

Although still at notably low levels, provisions for potential loan losses more than doubled in the quarter. Loan volumes remained stagnant in Germany and declined by 3% in Italy. The reduction in risk-weighted assets (RWAs) contributed to elevating the core capital to 17.2% of RWAs, up from 16.6% at the end of June.

Taking into consideration the decision to buy back shares with 2.5 billion euros from the 2023 profits, a move UniCredit plans to complete before the year’s end, the core capital would be at 16.3%.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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