UNICREDIT (UCG): UniCredit 2Q14 Group Results - raport 47

Raport bieżący nr 47/2014

Podstawa Prawna: Art. 56 ust. 1 pkt 2 Ustawy o ofercie - informacje bieżące i okresowe
GROUP NET PROFIT AT €403 M IN 2Q14 AND AT €1.1 BN IN 1H14 (+37.8% H/H)

NET PROFIT REACHES €618 M IN 2Q14 AND €1.3 BN IN 1H14 (+64.4% H/H) EXCLUDING THE REVISED TAX

CHARGE ON THE VALUATION OF THE STAKE IN BANCA D’ITALIA

SOLID BALANCE SHEET WITH CET1 RATIO FULLY LOADED IMPROVING TO 10.4%

AND SOUND LEVERAGE RATIO BASEL 3 FULLY LOADED: 4.7%, AMONG THE BEST IN EUROPE

GROUP ASSET QUALITY KEEPS IMPROVING WITH GROSS IMPAIRED LOANS DOWN AT €82.4 BN AND

COVERAGE RATIO ABOVE 51% IN LINE WITH BEST EUROPEAN PEERS

2Q14 CORE BANK NET PROFIT AT €1 BN (€2 BN IN 1H14) WITH HIGH QUALITY REVENUEMIX

COMMERCIAL BANK ITALY NET PROFIT AT €0.6 BN IN 2Q14 (+16.6% Q/Q) WITH €3.1 BN NEW MEDIUM

LONG TERM LOANS GRANTED IN 2Q14 (+13.3% Q/Q) FOR A TOTAL OF €6 BN IN 1H14 (+52.3% H/H)

CEE & POLAND KEY CONTRIBUTORS TO GROUP RESULTS WITH €0.4 BN NET PROFIT IN 2Q14 (+14.1% Q/Q)

NON-CORE GROSS LOANS FURTHER DOWN BY €2.6 BN IN 2Q14 (-3.1% Q/Q AND -9.5% H/H)

Another strong quarterly performance with 2Q14 net profit of €403 m leading to a 1H14 net profit of €1.1

bn. Adjusted for the revised tax charge on the valuation of the stake in Banca d’Italia, net profit 2Q14 and

1H14 reach €618 m and over €1.3 bn respectively with an annualised RoTE1 of 6.5%.

Significant strengthening of regulatory capital ratios, pro-forma for Fineco IPO and for the sale of DAB, with

CET1 ratio fully loaded2 increasing to 10.4% and CET1 ratio transitional to 10.8% thanks to RWA reduction,

retained earnings and scrip dividend. Total capital ratio transitional at 15.0%.

Solid balance sheet confirmed with a sound leverage ratio Basel 3 fully loaded at 4.7%, amongst the best in

Europe. Funding gap at €24.4 bn (-€6.3 bn Q/Q).

Group asset quality keeps improving with gross impaired loans decreasing to €82.4 bn. The coverage ratio

remains high at 51.2% despite the sale of over 1.3 bn vintage NPLs reducing the coverage ratio by c. 65bps.

The stock of Italian gross impaired loans of UniCredit decreases in 1H14 and displays a significantly lower

yearly growth rate compared to Italian banks’ average.

The Core Bank posts a net profit3 of €1.0 bn also in 2Q14, reaching €2.0 bn as of 1H14 (+7.1% H/H) thanks

to growing revenues (+2.9% Q/Q) and declining costs (-2.1% Q/Q). Commercial Bank Italy is the largest

contributor to Core Bank’s net profit, followed by CEE & Poland and CIB.

Positive trends registered in 1Q14 are confirmed in 2Q14 resulting in the high quality of the Core Bank’s

revenue mix: net interest income increases (+3.3% Q/Q, +5.9% Y/Y), mainly thanks to the re-pricing of

deposits, and fees are also higher (+3.3% Q/Q, +8.5% Y/Y) across all business segments.

Strong revamp in new medium-long term lending volumes in Italy with €3.1 bn in 2Q14 (+13.3% Q/Q) for a

total of c. €6 bn granted in 1H14 mainly driven by household mortgages (+146.2% H/H) and corporate

loans (+62.5% H/H).

1 RoTE = net profit/ tangible equity. Tangible equity net of €0.9 bn Additional Tier 1 and annualized net profit.

2 CET1 ratio fully loaded estimated pro-forma on the basis of understanding of the regulatory framework which will be in force starting from 2019, hence anticipating all the effects that will gradually be factored in.

3 Core Bank’s net profit does not include the revised tax charge on the valuation of the stake in Banca d’Italia (€215 m).

All divisions positively contributed to Core Bank’s results: Commercial Bank Italy’s net profit amounts to

€0.6 bn thanks to higher revenues (+1.3% Q/Q) and cost reduction (-5.0% Q/Q); CEE & Poland post a net

profit of €0.4 bn (+14.1% Q/Q at constant FX) thanks to the positive performance achieved in all key

markets; CIB’s net profit stands at €0.2 bn (-45.4% Q/Q) mainly affected by valuation adjustments

impacting trading profit. Adjusted for such negative items, CIB’s revenues are up Q/Q; Asset Management

and Asset Gathering confirmed the positive performance of 1Q14, posting €47 m net profit with €185.5 bn

AUM (+3.4% Q/Q) and €40 m net profit with €82.0 bn TFA (+3.6% Q/Q) respectively.

Non-Core portfolio run-down on track, with gross loans at €81.0 bn (-€2.6 bn Q/Q and -€8.5 bn Y/Y).

The Board of Directors of UniCredit approved 1H14 results on August 5th. Federico Ghizzoni, CEO of

UniCredit commented: "The positive results achieved in this quarter confirm the Group’s strong

performance, despite the uncertain macroeconomic environment. These results bring us closer to our target

of c. €2 bn net profit for 2014, which is now more challenging in light of the revised tax charge on the

valuation of the stake in Banca d’Italia, not included in our projections. UniCredit confirms itself as one of

the most solid banks in Europe: our CET1 ratio fully loaded increases to 10.4% and our leverage ratio Basel

3 fully loaded stands at 4.7%. Geographical diversification remains one of our key strengths. Italy displays

increasing profitability and new loan origination increases by over 50% versus first half 2013, confirming

our commitment to support the real economy.”

2Q14 KEY FINANCIAL DATA

GROUP

 Net profit: €403 m (€618 m and 5.9% RoTE excluding taxes on the stake in Banca d’Italia)

 Revenues: €5.7 bn net of tender offers’ proceeds4 (+1.9% Q/Q, -2.8% Y/Y)

 Total costs: €3.4 bn (-2.7% Q/Q, -2.0% Y/Y)

 AQ: LLP at €1.0 bn (+19.7% Q/Q, -34.5% Y/Y), coverage ratio 51.2%, net impaired loan ratio 8.4%

 Capital adequacy5: CET1 ratio fully loaded 10.4%; CET1 ratio transitional at 10.8%; Tier 1 ratio 11.3%

CORE BANK

 Net profit: €1.0 bn (-2.6% Q/Q, +1.1% Y/Y)

 Revenues: €5.6 bn net of tender offers’ proceeds4 (+2.9% Q/Q, +0.1% Y/Y)

 Total costs: €3.3 bn (-2.1% Q/Q, -2.7% Y/Y) with a cost/ income4 ratio of 58%

 AQ: LLP at €0.6 bn (+15.3% Q/Q, -1.4% Y/Y), cost of risk at 56bps

1H14 KEY FINANCIAL DATA GROUP

 Net profit: €1.1 bn (€1.3 m and 6.5% RoTE excluding taxes on the stake in Banca d’Italia)

 Revenues: €11.3 bn net of tender offers’ proceeds4 (-3.2% H/H)

 Total costs: €6.9 bn (-1.9% H/H)

 AQ: LLP at €1.8 bn (-31.9% H/H)

CORE BANK

 Net profit: €2.0 bn (+7.1% H/H)

 Revenues: €11.1 bn net of tender offers’ proceeds4 (-0.7% H/H)

 Total costs: €6.6 bn (-2.3% H/H) with a cost/ income ratio4 of 59%

 AQ: LLP at €1.1 (-1.4% H/H); cost of risk at 52bps

4Gross proceeds from the tender offers (buy-back) on debt securities amounting to €254 m in 2Q13 and to €49 m in 2Q14.

5 CET 1 ratio fully loaded and CET1 ratio transitional pro-forma for Fineco IPO and for the sale of DAB (+25bps).

UNICREDIT GROUP - 2Q14 HIGHLIGHTS

Net profit at €403 m leading to a 1H14 net profit of €1.1 bn (+37.8% H/H). Adjusted for the revised tax

charge on the valuation of the stake in Banca d’Italia, net profit 2Q14 and 1H14 reaches €618 m and €1.3

bn (+64.4% H/H) respectively with an annualised RoTE6 of 6.5%.

Total assets broadly stable at €839 bn, as the growth in financial investments (+€6.3 bn Q/Q) and in

financial assets held for trading (+€4.7 bn Q/Q) compensates lower loans to banks (-€3.1 bn Q/Q) and

lower loans to institutional and market counterparts (-€7.6 bn Q/Q).

Tangible equity increases to €43.5 bn (+3.4% Q/Q) thanks to the contribution of €0.9 bn Additional Tier 1

and net profit generated in the period.

RWA/ total assets stands at 47.5%, still a relatively high level compared to European peers.

Funding gap further shrinking to €24.4 bn at Group level (improving by €39.2 bn Y/Y) and at €15.2 bn for

Italy (improving by €23.2 bn Y/Y).

Asset quality dynamics confirm the positive trends registered in 1Q14 with gross impaired loans

decreasing for the second quarter in a row to €82.4 bn (-0.1% Q/Q). Coverage ratio stands at a sound level

of 51.2% despite the sale of vintage NPL portfolios7. NPLs slightly up to €49.6 bn (+0.6% Q/Q) with a strong

coverage ratio of 61.1%. Other impaired loans decline to €32.8 bn (-1.2% Q/Q) with a coverage ratio of

36.3%.

CET1 ratio fully loaded2 reaches 10.4%, pro-forma for Fineco IPO and for the sale of DAB (+25bps). Such

significant strengthening has been achieved thanks to RWA reduction8 (+42bps), increase in AFS and FX

reserve (+18bps), scrip dividend (+9bps) and retained earnings9 (+6bps). CET1 ratio transitional pro-forma

stands at 10.8%.

Tier 1 ratio and total capital ratio transitional stand at 11.3% and 15.0% respectively, including €0.9 bn

Additional Tier 1.

Leverage ratio Basel 3 fully loaded at 4.7% among the best in Europe, confirming the high solidity of

UniCredit’s balance sheet.

Funding plan 2014 executed for 53%. As of today, UniCredit has repaid €17.1 bn of LTRO, of which €10 bn

in 2Q14. The remainder €9 bn will be gradually reimbursed. Funding plan 2014 is currently under review in

light of capital markets’ conditions and the liquidity effects connected with the new ECB facilities.

6 RoTE = Net profit/ Tangible equity. Tangible equity net of €0.9 bn Additional Tier 1 (“AT1”) and annualized net profit.

7 In 2Q14, UniCredit completed the sale of vintage NPL portfolios with total gross book value of €1.3 bn.

8 RWA reduction mainly achieved thanks to the optimization allowed by regulatory change to market and operational RWA calculation and

diversification related benefits.

9 Interim net profit after dividend accrual assumed at 10 €cents in line with the previous year.

CORE BANK - 2Q14 RESULTS

Net profit at €1.0 bn10 (-2.6% Q/Q, +1.1% Y/Y) in 2Q14. Main contributors are: Commercial Bank Italy with

€574 m (+16.6% Q/Q and 33% RoAC), CEE & Poland with €392 m (+14.1% Q/Q at constant FX and 19%

RoAC) and CIB with €213 m (-45.4% Q/Q and over 12% RoAC). Net profit reached €2.0 bn as of 1H14

(+7.1% H/H) leading to a risk adjusted profitability (RoAC11) of 11.1%.

Net operating profit net of tender offers’ proceeds12 strongly up at €1.8 bn (+9.1% Q/Q, +6.4% Y/Y) as

growing revenues and declining costs more than compensate the increase in LLP. Net operating profit

totalled €3.4 bn as of 1H14 (+2.8% H/H).

Revenues net of tender offers’ proceeds12 increase to above €5.6 bn (+2.9% Q/Q, flat Y/Y) and display a

high quality mix. Key contributors to such revenue growth are: Commercial Bank Italy with €2.1 bn (+1.3%

Q/Q, +7.6% Y/Y), CEE & Poland with over €1.4 bn (+9.1% Q/Q, flat Y/Y) and Commercial Bank Austria with

€0.4 bn (+13.4% Q/Q, +10.4% Y/Y).

Net interest income increases to €3.1 bn reaching €6.2 bn as of 1H14 (+3.3% Q/Q, +5.9% Y/Y and +4.7%

H/H) as the re-pricing of deposits offsets the subdued dynamics on the lending side.

Customer loans decrease slightly to €426.2 bn (-1.5% Q/Q) mainly due to Institutional and Market

Counterparts (-15.6% Q/Q). Commercial loans held up well in 2Q14, increasing by €1.3 bn mostly driven by

CEE & Poland.

New medium-long term lending flows in Italy confirm the positive trend registered in the past quarters,

with €3.1 bn new loans granted in 2Q14 (+18.5% Q/Q). Total new lending in 1H14 reached €5.9 bn (+52.3%

H/H) driven by household mortgages (+146.2% H/H) and corporate loans (+62.5% H/H).

Direct funding13 slightly down to €450.3 bn (-0.3% Q/Q) mainly as effect of the tender offer of network

bonds14 in Italy executed in 2Q14 for €2.5 bn and despite the positive trend registered in CEE & Poland and

CIB.

Fees and commissions increase to €1.9 bn (+3.3% Q/Q, +8.5% Y/Y), in excess of €3.7 bn as of 1H14 (+4.9%

H/H) thanks to the strong growth registered in all components: investment services fees amount to €841 m

(+1.9% Q/Q, +10.5% Y/Y) confirming the rebound in asset under management and bancassurance products

demand registered in 1Q14; financing services fees amount to €462 m (+5.2% Q/Q, +9.4% Y/Y) driven by

credit related fees in CIB; transactional banking fees amount to €585 m (+4.0% Q/Q, +4.9% Y/Y).

Dividends and other Income15 amount to €309 m (+107.6% Q/Q, +2.2% Y/Y) mainly thanks to Yapi Kredi’s16

strong quarterly performance (€86 m vs. €50 m in 1Q14) and to the higher dividends received on the stake

in Banca d’Italia (€84m vs. €15m in 2Q13).

10 Core Bank’s net profit and taxes do not include the revised tax charge on the valuation of the stake in Banca d’Italia (€215 m).

11 RoAC = net profit/allocated capital. Allocated capital is calculated as 9% of RWAs, including deductions for shortfall and securitisations.

12Gross proceeds from the tender offers (buy-back) on debt securities amounting to €254 m in 2Q13 and to €49 m in 2Q14.

13Direct funding defined as the sum of customer deposits and customer securities.

14Network bonds comprise the securities placed both through UniCredit commercial network and 3rd party networks.

15 Including net other expenses/income.

Trading income net of tender offers’ proceeds12 decreases to €314 m (-34.2% Q/Q, -50.6% Y/Y) mostly

affected by c. €120 m credit adjustments for counterparty risk in CIB.

Total costs further down to €3.3 bn (-2.1% Q/Q, -2.7% Y/Y) reaching €6.6 bn as of 1H14 (-2.3% H/H) in line

with the Group’s cost reduction targets. Staff expenses reach €2.0 bn (-3.9% Q/Q, -5.0% Y/Y) while other

administrative expenses and depreciation and amortization remain broadly stable in the quarter. Cost/

income ratio, net of tender offers’ proceeds12, decreases to 58% (vs. 61% in 1Q14). Commercial Bank Italy

displays a sound cost/income ratio, net of tender offers’ proceeds12, of 46%.

Loan loss provisions (LLP) at €603 m, showing seasonal growth Q/Q while reducing Y/Y (+15.3% Q/Q, -1.4%

Y/Y) reaching €1.1 bn as of 1H14 (-1.4% H/H). Cost of risk in CEE stands at 119bps (+13bps Q/Q, -28bps

Y/Y), in CIB at 43bps (+43bps Q/Q, -26bps Y/Y), in Commercial Bank Italy at 90bps (+5bps Q/Q, +22bps Y/Y)

and in Asset Gathering at 49bps (+26bps Q/Q, +18bps Y/Y), resulting in a total cost of risk for the Core Bank

of 56bps (+8bps Q/Q, +1bp Y/Y).

Risk and charges amount to €148 m, including c. €30 m booked in Hungary as a result of the new law

establishing the abolition of the bid/offer spreads applied to retail foreign-currency loans. Restructuring

costs amount to €25 m and profit from investments stands at €42 m, including €132 m capital gain from

the disposal of the stake in SIA.

Income taxes10 amount to €518 m, comprising c. €117 m one-off impact from DTA write-off following the

reduction of IRAP tax rate which will translate into a lower tax charge on a running basis going forward.

Consequently, effective tax rate lands at approximately 31%.

NON-CORE - 2Q14 RESULTS

Gross customer loans shrink to €81.0 bn (-€2.6 bn or -3.1% Q/Q and -€8.5 bn or -9.5% Y/Y), of which c. 30%

or €25.2 bn performing and c. 70% or €55.8 bn impaired loans.

Gross impaired loans decrease by €1.3 bn (-2.3% Q/Q) confirming the trend registered in 1Q14. Coverage

ratio remains sound at 52.1%. NPLs amount to €35.3 bn, slightly down Q/Q and covered at 61.4%.

Net result strongly improving Y/Y and equal to -€370 m as of 2Q14 affected by lower revenues (€38 m, -

58.4% Q/Q) and by increasing LLP (€400 m, +26.9% Q/Q) only partially compensated by cost reduction

(€146 m, -15.0% Q/Q).

DIVISIONAL HIGHLIGHTS - 2Q14 RESULTS

Commercial Bank Italy. With a net profit at €0.6 bn (+16.6% Q/Q, +28.0% Y/Y) and 33% RoAC, Commercial

Bank Italy is top performer among divisions for the second quarter in a row. Revenues improve (+1.3%

Q/Q) and costs register a significant reduction (-5.0% Q/Q) in line with the Strategic Plan targets.

16 Starting from 1st January 2014, following the introduction of IFRS 11 the former proportional consolidation has been ruled out and Koç/ Yapi

Kredi Group (Turkey) is now valued according to the equity method. Consequently, the net profit Koç/ Yapi Kredi Group is booked as dividend

and other income. Previous quarters have been restated accordingly.

CEE & Poland with a net profit of €0.4 bn (+14.1% Q/Q at constant FX and 19% RoAC) confirm their role as

key contributor to Group result. Leveraging on their strong competitive positioning, the banks in Turkey,

Russia, Poland and Czech Republic & Slovakia post a solid quarterly performance and jointly represent c.

80% of total net profit of CEE & Poland division in 1H14.

CIB. Net profit at €0.2 bn and over 12% RoAC as the positive commercial performance of GTB and F&A17 is

partly offset by valuation adjustments impacting trading profit. Adjusted for such negative item, CIB’s

revenues are up Q/Q. Client focus and commercial actions in such a challenging environment and

increased competition allow CIB to defend and improve market positioning: #1 All EMEA Bonds (#4 in June

2013), #3 All EMEA Loans (#4 in March 2014, #5 in June 2013)18.

RATINGS

MEDIUMAND OUTLOOK SHORT-TERM STANDALONE LONG-TERM DEBT RATING

Standard & Poor's BBB NEGATIVE A-2 bbb

Moody's Investors Service Baa2 NEGATIVE P-2 D+/ba1

Fitch Ratings BBB+ NEGATIVE F2 bbb+

S&P affirmed all the ratings including the ‘BBB/A-2’ long-term and short-term ratings with the existing

negative outlook on the 24th of March 2014.

Moody’s on the 29th of May changed the outlook on 82 European banks including UniCredit SpA (from

stable to negative) as the rating agency is reviewing its systemic support assumptions.

Fitch’s ratings reaffirmed on the 13th of May at ‘BBB+/F2’ with the existing negative outlook.

17Global Transaction Banking and Finance & Advisory.

18 Source: Dealogic.

Attached are the Group’s key figures, the consolidated balance sheet and income statement, the quarterly

evolution of the consolidated income statement and balance sheet, the first half 2014 income statement

comparison for the Core Bank and for the Non-Core.

Declaration by the Senior Manager in charge of drawing up company accounts

The undersigned, Marina Natale, in her capacity as the senior manager in charge of drawing up UniCredit

S.p.A.’s company accounts

DECLARES

pursuant to Article 154 bis of the ‘Uniform Financial Services Act’ that the accounting information relating

to the Consolidated First Half Financial Report as at June 30th, 2014 as reported in this press release

corresponds to the underlying documentary reports, books of account and accounting entries.

Nominated Official in charge of drawing up Company Accounts

Milan, August 5th 2014

Investor Relations:

Tel.+39-02-88624324; e-mail: investorrelations@unicredit.eu

Media Relations:

Tel.+39-02-88623569; e-mail: mediarelations@unicredit.eu

UNICREDIT 2Q14 GROUP RESULTS - DETAILS OF CONFERENCE CALL

MILAN, AUGUST 5TH 2014 – 15.00 CEST

CONFERENCE CALL DIAL IN

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https://www.unicreditgroup.eu/group-results, WHERE THE SLIDES WILL BE DOWNLOADABLE

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