UniCredit pledges payout of 5.3 billion euros after posting record profit

UNICREDIT pledged on Tuesday (Jan 31) to return 5.3 billion euros (S$7.48 billion) to investors, after it posted a record profit for the fourth quarter of 2022.

The bank’s quarterly profit of 2.5 billion euros was more than twice the average forecast of 1.1 billion euros by analysts it polled. The latest figure included 852 million euros in tax credits stemming from past losses; UniCredit was able to factor these back in as a result of its higher profitability.

UniCredit said income from its core lending activity jumped 38 per cent from the previous quarter, and 43 per cent from a year earlier. This came as tighter monetary policy widened the gap between banks’ loan rates and fundraising rates. Total revenue for the quarter therefore rose to 5.7 billion euros, above a 5.1 billion euro average forecast.

Lenders need approval from the European Central Bank for share buybacks, which account for almost two-thirds of UniCredit’s 2022 capital distribution target. Chief executive Andrea Orcel said that the bank had completed “extensive discussions with regulators” and was “very confident” that it could get authorisation to execute those share buybacks.

A former investment banking chief at UBS, Orcel has bet on shareholder remuneration to boost the appeal of his bank’s shares, which traditionally traded at a discount to the sector.

Since taking the helm in April 2021, he has focused UniCredit on capital-light businesses, to maximise returns. Keeping tight control of costs, he has focused on generating capital to return to shareholders, who received 3.8 billion euros in dividends and share buybacks from 2021 earnings.

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With a goal of paying out more than 16 billion euros in dividends and buybacks by 2024, UniCredit said it aimed for a 2023 profit distribution target in line with 2022. It also expected its 2023 net profit to be in line with that in 2022, including for its Russian business. It had earlier excluded the unit from its profit goal after the war in Ukraine broke out.

“We no longer see Russia as a source of substantial volatility,” Orcel explained. While UniCredit reduced its cross-border exposure to Russia by 66 per cent, it failed to extricate itself from the country, where it owns a top-15 lender.

The bank said its core capital rose to 16 per cent in the fourth quarter of 2022, from 15.4 per cent at the end of September. After taking into account its most recent distribution plans, the bank’s pro-forma core capital was 14.9 per cent, well above its target of between 12.5 per cent and 13 per cent. REUTERS