UNICREDIT GROUP: CONSOLIDATED RESULTS APPROVED FOR THIRD QUARTER 2008 AFTER APPLICATION OF AMENDMENTS TO ACCOUNTING STANDARD IAS 39
NET PROFIT € 551 MILLION. COSTS DOWN WHEN COMPARED TO THE PREVIOUS QUARTER AND EXCELLENT PERFORMANCE OF COMMERCIAL BANKING
- Profit before tax at €1,116 million, after booking some €1.3 billion in write-downs associated with the financial crisis. The Group has applied the amendments to IAS 39, generating a positive impact of €856 million before tax.
- Excellent performance of Commercial Banking (1), with an increase in revenues of 9.0% YoY. Strong growth in the CEE Division (revenues +50% YoY, +25.9% YoY on a normalized basis), solid results from Corporate (+ 8% YoY) and Retail Italy (+2.8% YoY).
- Net trading, hedging and fair value income is a negative €523 million, impacted by the conditions on financial markets.
- Operating costs down in absolute terms compared to the previous quarter. The normalized change amounts to 1.5% YoY (-0.9% in Western Europe, +13.6% in the CEE Region).
- Net operating profit of €2,589 million (-8% YoY).
- Core Tier 1 at approximately 5.7% (Basel II) before the impact of the announced capital increase. The figure includes the impact of both the squeeze-out of HVB's minorities completed in the third quarter and the put option held by the Polish Ministry of the Treasury on 3.95% of Bank Pekao
The Group's consolidated results for the third quarter were impacted by the dramatic conditions on the financial markets. While there was a decided drop in the areas linked to the markets - more specifically, the Markets & Investment Banking Division and Asset Management which, however, reported a positive net result - the Group benefited from its geographical and sector diversification, reporting excellent results in commercial banking where revenues are up 9.0% YoY.
UniCredit's Board of Directors approved the consolidated results for third quarter 2008 which show a net profit of €551 million (mn).
The operating profit amounts to €2,589 mn, a reduction of 8% YoY. The drop in the Markets & Investment Banking Division (operating profit negative for €137 mn) is offset by excellent growth in the CEE Region (+37.0% YoY, +13.3% YoY on a normalized basis), in the Retail Division (+8.5% YoY) particularly in Italy (+14.8% YoY), and the Corporate Division (+11.4% YoY).
The Group's operating performance was impacted by the trend in operating income which amounts to € 6,746 mn (-1.5% YoY), due to the negative impact of net trading, hedging and fair value income (for some €523 mn), despite the application of the IAS 39 amendments (positive impact of € 937 mn on operating income). The CEE Region (+13.5% YoY on a normalized basis) and the Corporate Division (+8% YoY) both report an excellent performance.
Net interest income rises +18.4% YoY (+14.7% YoY on a normalized basis), thanks to the widening of spreads as well as an increase in volumes: customer loans +8.4% when compared to year end 2007 (net the effect of IAS 39 the increase is approximately 6%), customer deposits and securities +1.5% when compared to December 2007.
Net commissions show a drop of 13.1%, primarily due to a strong decline in asset management, custody and administration (commissions from asset management, custody and administration (2) amount to €915 mn, -26.3% YoY). The other fees and commissions (€1,286 mn) are substantially unchanged.
At the end of September 2008, the volumes of the assets managed by the Group's asset management companies are €198.7 billion (bn), a drop of 27.2% YoY. When compared to 31 December 2007, however, the reduction is 22.7%. The trend of the financial markets (stock markets, in particular) and the changes made, consequently, by customers in terms of Asset Mix have reduced both the stock and the average profitability of assets under management and administration with a clear impact on fee income.
Operating costs have dropped on a quarterly basis (-1.6% QoQ), coming in at €4,157 mn. The normalized growth over third quarter 2007 is extremely small (+1.5% YoY) thanks to constant cost reduction in Western Europe (-0.9% YoY) and despite the strong growth of the CEE Region (+ 13.6% YoY). The cost/income ratio comes in at 61.6% (compared to 58.9% in the previous year).
Payroll costs amount to €2,467 mn, +1.1% YoY on a normalized basis), in line with the other administrative expenses (equal to €1,478 mn, +0.1% YoY on a normalized basis), while amortization, depreciation and impairment losses on tangible and intangible assets (€326 mn) are basically unchanged YoY. Retail, Asset Management and the Markets & Investment Banking Divisions all report a drop in operating costs YoY.
The provisions for risks and charges total €51 mn (- €32 mn YoY).
Net write-downs on loans and provision for guarantees and commitments in third quarter 2008 (€693 mn) show an increase of 12,5% YoY. In addition there are €365 mn in other provisions arising from imbalances caused by the financial market crisis in September (primarily: Icelandic banks for €252 mn and provisions linked to the application of IAS 39 amendments for €80 mn).
Total net impaired loans (€17.1 bn at the end of September 2008) show an increase of approximately 5% when compared to the figure at year end 2007 due primarily to signs of deterioration in the economic cycle, as well as an increase in volumes. These loans account for 2.75% of total loans, down from 2.84% reported at year end. Net non performing loans total €9,456 mn compared to €9,347 mn at year end and represent 1.52% of total loans versus 1.62% reported at the end of 2007. The coverage ratio of net non performing loans is basically unchanged and amounts to 66.2%, while the coverage ratio of the net impaired loans reaches 55.5%, a slight drop on the 56.1% recorded at the end of 2007.
The integration costs, following the Capitalia transaction, total €18 mn (€102 mn in third quarter 2007). Net income from investments is negative for some €346 mn due primarily to the write-down of the equity investments in the London Stock Exchange (€215 mn), Babcock and Brown (€112 mn) and Lehman (€30 mn).
Profit before tax is €1,116 mn (a decrease of 46.7% when compared to third quarter 2007) after booking some €1.3 bn in write-downs associated with the financial crisis. The Group has applied the amendments to IAS 39, generating a positive impact of €856 mn before tax.
Income tax for the period reaches €393 mn with a tax rate of 35.2% (compared to 34.2% in third quarter 2007 and 22.6% reported in second quarter 2008).
Net profit, therefore, amounts to €723 mn (€1,378 mn in third quarter 2007).
Minorities total €113 mn.
Net profit attributable to the Group in third quarter 2008 falls 54.2% YoY to €551 mn, with a negative impact of the Purchase Price Allocation of €59 mn relative to the Capitalia transaction.
The Group's portion of net equity amounts to €56,620 mn.
The Core Tier 1 ratio (Basel II) goes from 5.71% at the end of June 2008 to 5.67% at the end of September 2008 before the impact of the announced capital increase. This figure includes the impact of both the squeeze-out of the HVB minorities completed in the third quarter and the put option held by Polish Ministry of the Treasury on 3.95% of Bank Pekao.
Tier 1 Ratio is 6.46% (compared to 6,49% at the end of June 2008); Total Capital Ratio reaches 10,44% (10,36% in June 2008) before the impact of the announced capital increase.
At the end of September the Group's organization consisted of a staff of 177,393 - Full Time Equivalent (3) - an increase of 7,577 heads over the end of 2007 due exclusively to the increase in personnel in the CEE Region, while all the other Divisions recorded staff reductions. Furthermore, at a Group level the total number of heads has dropped compared to the end of June (177,571). Compared to the end of 2007, on a normalized basis (like-for-like perimeter of consolidation) the Retail area shows a drop of 552 heads due to rationalization, particularly in Italy; Asset Management and the Markets & Investment Banking Division report significant reductions (237 and 547 heads, respectively, versus year end 2007). The September figure in the CEE Region, if compared to the end of June, also shows a significant decline (- 278 heads).
The Group's network at the end of September 2008 consisted of 10,280 branches, (9,714 at December 2007, +566 branches).
Notes:
1) Retail, CEE Region (CEE and Poland's Markets Divisions), Corporate, Private
2) Commissions related to management of collective investment funds, fees on segregated acounts, placement of insurance products and other securities-related activities
3) "Full time equivalent", the figures include the companies consolidated proportionately, such as the KFS group, at 100%. The increase in resources over December 2007 is due to the inclusion of Ukrsotsbank (10,740 heads at March 2008).
Milan, November 12th, 2008
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Attached are the Group's key figures, the consolidated balance sheet, the consolidated income statement, the quarterly income statement and the major divisional results.