2Q15 and 1H15 Group Results

Group Net Profit of €522 m in 2Q15 (+2.0% Q/Q, +29.5% Y/Y) Exceeding €1 bn in 1H15, with All Divisions Positively Contributing to Quarterly Performance

CET1 Ratio Transitional at 10.52% and Including Pioneer Deal at 10.92%.

CET1 Ratio Fully Loaded Pro-Forma at 10.84% Including AFS Reserves as of Today and Pioneer Deal 

Group Asset Quality Remarkable Improvement and Solid Coverage Ratio At 51%.

Impaired Loans Continued Reduction Fuelled by Portfolio Sales and Higher Collections & Back to Performing

Core Bank Revenues Resilient at €5.7 bn in 2Q15 (+0.1% Q/Q, +0.1% Y/Y) and €11.4 bn in 1H15 (+1.9% H/H), Supported by Higher NII and Dividends

All divisions contribute positively to quarterly performance with a Group net profit of €522 m in 2Q15 (+2.0% Q/Q, +29.5% Y/Y), exceeding €1 bn in 1H15 with RoTE ^[1] at 5.0%.

CET1 ratio transitional rises to 10.52% (+66bps Q/Q) and including Pioneer deal reaches 10.92%. Tier 1 ratio transitional at 11.40% and Total Capital ratio transitional at 14.24%. CET1 ratio fully loaded pro-forma improves to 10.37%[1] (including AFS reserves^[2] and Pioneer deal at 10.84%). Basel 3 Leverage ratio^[3] transitional at 4.60% and fully loaded pro-forma at 4.31%.

Group asset quality improvement accelerates in 2Q15, with gross impaired loans further down to €81.7 bn (-1.8% Q/Q). Gross bad loans reduce by -0.2% Q/Q, supported by continued disposals. Other gross impaired loans further shrink by -4.3% Q/Q, due to higher collections and back to performing. UniCredit's coverage ratio on gross impaired loans rises at 51.0%, among the highest in the Italian banking sector.

The Core Bank posts a net profit of €819 m in 2Q15, reaching €1.7 bn in 1H15, supported by net interest income growth (+1.8% Q/Q) and higher dividends (+127% Q/Q), partially offsetting increase in operating costs (+1.6% Q/Q) and LLP (+8.1% Q/Q).

Today, the Board of Directors of UniCredit approved 1H15 results. Federico Ghizzoni, CEO of UniCredit, comments: "UniCredit posted a net profit exceeding € 1 billion in the first half 2015, an excellent result  in a still unfavorable environment for the banking sector, with interest rates at their historical lows. We strengthened our capital ratios, confirming the solidity of our Group; capital should further improve also thanks to Pioneer deal. In contrast with the banking sector in Italy, UniCredit's asset quality improved significantly as a result of the reduction in impaired loans, deriving from a resilient performing loan book and an increase in collections. In a scenario characterized by a moderate economic recovery, both in Italy  and in Europe, UniCredit showed significant growth in new loans origination. The new medium-long term credit granted to corporates and households, across its key markets, increased by c. 40% in the first half."

GROUP

• Net profit: €522 m (+2.0% Q/Q, +29.5% Y/Y) and 4.9% RoTE
• Revenues: €5.7 bn (-0.3% Q/Q, -1.1% Y/Y)
• Total costs: €3.4 bn (+0.5% Q/Q, +3.0% Y/Y) with a cost/income ratio of 59.9% (+0.5pp Q/Q, +2.4pp Y/Y)
• Asset Quality: LLP at €913 m (-6.9% Q/Q, -9.0% Y/Y), net impaired loans ratio at 8.4% and coverage ratio at 51.0%
• Capital adequacy: CET1 ratio transitional up to 10.52% (+66bps Q/Q) and including Pioneer deal up to 10.92%. Tier 1 ratio transitional at 11.40% and Total Capital ratio transitional at 14.24%. CET1 ratio fully loaded pro-forma stands at 10.37% (including AFS reserves as of today and Pioneer deal at 10.84%)

CORE BANK

• Net profit: €819 m (-6.9% Q/Q, +7.9% Y/Y) and 8.9% RoAC [5]
  
• Revenues: €5.7 bn (+0.1% Q/Q and Y/Y)
• Total costs: €3.3 bn (+1.6% Q/Q, +3.6% Y/Y) with a cost/income ratio of 58.0% (+1pp Q/Q, +2pp Y/Y)
• Asset Quality: LLP at €615 m (+8.1% Q/Q, +2.6% Y/Y), cost of risk at 56bps (+4bps Q/Q, stable Y/Y)

GROUP

• Net profit: €1,034 m (-7.3% H/H) and 5.0% RoTE
• Revenues: €11.5 bn (+0.9% H/H)
• Total costs: €6.9 bn (+1.6% H/H) with a cost/income ratio of 59.7% (stable H/H)
• Asset Quality: LLP at €1.9 bn (+2.8% H/H), cost of risk at 79bps (+3bps H/H)

CORE BANK

• Net profit: €1.7 bn (-3.9% H/H) and 9.2% RoAC
• Revenues: €11.4 bn (+1.9% H/H)
• Total costs: €6.6 bn (+2.0% H/H) with a cost/income ratio of 57.6% (stable H/H)
• Asset Quality: LLP at €1.2 bn (+5.5% H/H), cost of risk at 55bps (+2bps H/H)

Net profit reaches €522 m in 2Q15, including €98 m of additional charges for the Single Resolution Fund (SRF) and €100 m of impairment related to Ukrsotsbank. Net profit above €1 bn in 1H15 with RoTE at 5.0%.

Total assets decrease to €875.1 bn (-€25.5 bn Q/Q) driven by a decline in customer loans and trading assets. The reduction in loans to customers (-€8.7 bn Q/Q) is mainly related to the decrease in loans to institutional and market counterparties (-€9.6 bn Q/Q), while the drop in trading activities (-€16.7 bn Q/Q) is counterbalanced by the correspondent trend in trading liabilities (-€17.7 bn Q/Q) as a result of higher medium-long term interest rates.

RWA/Total assets ratio stands at 46.4% in 2Q15 with RWA reduced to €405.9 bn (-€14.7 bn Q/Q) mainly as a result of a decrease both in credit (-€8.0 bn Q/Q) and market RWA (-€6.2 bn Q/Q). Credit RWA reduction is driven by business actions (-€2.0 bn, mainly securitizations), changes in regulation & pro-cyclicality (-€2.8 bn) and volumes & FX effect (-€2.9 bn). Market RWA dynamics is mainly due to business evolution (-€4.2 bn) and amortization of FX hedging in CEE (c. -€2 bn).

Tangible equity lowered to €44.6 bn (-2.4% Q/Q) mainly due to the impact of rates on AFS reserves.

Funding gap [6] is positive at €1.5 bn (-€16.9 bn Q/Q) thanks to market counterparties volumes evolution.

Asset quality improvement accelerates in 2Q15 with gross impaired loans down to €81.7 bn (-1.8% Q/Q), supported by continued disposals of bad loans and with net impaired loan ratio down to 8.4% (-0.7% Q/Q). Coverage ratio is up to 51.0% (+0.4% Q/Q). Gross bad loans are down to €51.3 bn (-0.2% Q/Q) with a resilient coverage ratio at 61.7%. Other gross impaired loans decline to €30.5 bn (-4.3% Q/Q), due to higher collections and back to performing. In Italy, asset quality continues to experience positive progress with impaired loans trend of UniCredit S.p.A. consistently better than the Italian banking system (ABI sample [7]) at the June 2015. Gross bad loans are growing at a slower pace and other impaired loans significantly reduced during 2Q15.

CET1 ratio transitional rises to 10.52% (+66bps Q/Q) and including Pioneer deal reaches 10.92%. Tier 1 ratio transitional and Total Capital ratio transitional stand at 11.40% and 14.24%, respectively (including Pioneer deal 11.80% and 14.64%). CET1 ratio fully loaded pro-forma increases at 10.37% (+27bps Q/Q), with positive contributions from quarterly earnings generation (+13bps) and RWA decrease (+37bps), which more than offset the negative components (-22bps). CET1 ratio fully loaded pro-forma increases to 10.84%, including the positive contribution from AFS reserves as at today (+22bps - on the back of market normalization after Greek turmoil) and Pioneer deal (+25bps).

Basel 3 Leverage ratio sets at 4.60% on a transitional basis and pro-forma at 4.31% on a fully loaded basis, confirming the solidity of UniCredit's balance sheet.

Funding plan 2015 executed at 50% for about €13.3 bn (72% issued in Italy) as of end of July.

TLTRO total take-up amounts to €18.0 bn [8]. Redeployment plan on track with the full amount granted to corporates and SMEs in Italy.

Net profit reaches €819 m in 2Q15 (-6.9% Q/Q, +7.9%Y/Y) and €1.7 bn in 1H15 (-3.9% H/H) with a RoAC of 8.9% in 2Q15. Main contributors to 2Q15 net profit are Commercial Bank Italy with €570 m (+0.6% Q/Q, +5.9% Y/Y and 27.9% RoAC), CIB with €252 m (-29.0% Q/Q, +27.6% Y/Y and 15.4% RoAC) and CEE with €152 m [9] (-14.8% Q/Q, -46.2% Y/Y and 7.2% RoAC) or €252 m excluding the impact of €100 m of impairment related to Ukrsotsbank (+41.2% Q/Q, -10.8% Y/Y and 11.9% RoAC).

Net operating profit decreases to €1.8 bn in 2Q15 (-4.9% Q/Q, -6.6% Y/Y), slightly increased to €3.6 bn in 1H15 (+0.5% H/H) thanks to revenue generation at €5.7 bn in 2Q15 (+0.1% Q/Q and Y/Y) and at €11.4 bn in 1H15 (+1.9% H/H) almost compensating an increase in operating costs and LLP.

Continued progression in revenues in 2Q15 is driven by Commercial Bank Italy with €2.2 bn (+1.0% Q/Q, +2.8% Y/Y), CIB with €993 m (-5.9% Q/Q, +10.3% Y/Y) and CEE with €982 m (+8.1% Q/Q, +0.8% Y/Y).

Net interest income stands at €3.0 bn in 2Q15 (+1.8% Q/Q, -4.4% Y/Y) and at €5.9 bn in 1H15 (-3.5% H/H) with the positive dynamics of lower cost of funding mitigating the negative trend of loan/deposit volumes and customer rates.

Customer loans down to €432.6 bn (-1.7% Q/Q), with commercial loans increasing (+0.5% Q/Q) thanks to Commercial Bank Germany and Commercial Bank Austria (+0.1% and +0.6% Q/Q, respectively) and CIB (+4.1% Q/Q). Institutional and market counterparties down to €36.2 bn (-20.9% Q/Q).

New medium-long term lending in Commercial Banks reaches €15.4 bn (+37.6% H/H): in Italy (+45.3% H/H) supported by mid-corporates (+99.2% H/H), in Germany (+32.2% H/H) supported by household mortgages (+80.3% H/H) as well as in Austria (+19.9% H/H) by household mortgages (+84.2% H/H).

Direct funding [10] reaches €473.6 bn (+1.8% Q/Q) with commercial funding growing up to €405.9 bn (+1.0% Q/Q) as well as institutional and market counterparts up to €67.6 bn (+7.5% Q/Q).

Fees and commissions are stable at €2.0 bn in 2Q15 (-0.1% Q/Q, +3.1% Y/Y), reaching €3.9 bn in 1H15 (+5.2% H/H), sustained by investment service fees at c. €1 bn in 2Q15 (-1.2% Q/Q, +10.6% Y/Y) and transactional fees at €566 m in 2Q15 (+3.9% Q/Q, +0.1% Y/Y) mainly driven by credit card business in CEE & Poland.

Trading income reduces to €462 m in 2Q15 (-25.5% Q/Q, +38.3% Y/Y) reflecting market conditions (-€152 m Q/Q, -€38 m Y/Y) and customer driven activities (-€115 m Q/Q, +€48 m Y/Y). Trading income reaches €1.1 bn in 1H15 (+33.3% H/H).

Dividends and other income [11] increase at €275 m in 2Q15 (+72.7% Q/Q, -13.6% Y/Y) reaching €435 m in 1H15 (-8.8% H/H). Yapi Kredi contributes to dividend generation to €87 m in 2Q15 (+23.8% Q/Q and +30.5% Q/Q at current and constant FX respectively).

Total costs reach €3.3 bn in 2Q15 (+1.6% Q/Q, +3.6% Y/Y) and €6.5 bn in 1H15 (+2.0% H/H), with higher staff expenses both in 2Q15 and in 1H15 driven by accrual of variable compensations, while other administrative expenses in 1H15 are down thanks to lower discretionary costs partially mitigating the growth of staff expenses and depreciation. Cost/income ratio at 58.0% in 2Q15 (+1pp Q/Q).

LLP stand at €615 m in 2Q15 leading to a cost of risk of 56bps, driven by a portfolio stabilization, increase coverage in Russia and a single ticket in CIB. Confirmed low and sustainable trend in cost of risk in Germany, Austria and Poland.

Other charges and provisions amount to €313 m as of 2Q15, including additional costs related to SRF and  Deposit Guarantee Scheme for a total of €139 m.   

Income taxes for the period amount to €379 m, corresponding to an effective tax rate of c. 26%.

Loss from non-current assets held for sale, after tax sets at €121 m in 2Q15, mainly related to Ukrsotsbank (€100 m impairment and c. €40 m 2Q15 loss).

Acceleration of de-risking continues with gross customer loans further down at €69.9 bn in 2Q15 (-€2.2 bn Q/Q, -€10.9 bn Y/Y), mainly due to the decrease of performing loans at €16.1 bn (-€1.0 bn Q/Q, -€8.9 bn Y/Y) and supported by bad loan sales for €734 m gross book value.

Gross impaired loans confirm a downward trend reaching €53.7 bn (-2.1% Q/Q), coupled with a sound coverage ratio at 51.6%. Gross bad loans slightly increase to €36.4 bn (+0.4% Q/Q) in line with the natural ageing of the portfolio. Solid coverage ratio above 60%. Other impaired loans are down at €17.3 bn (-6.9% Q/Q) confirming the positive de-risking trend, with solid coverage ratio at 32.8%.

Net result strongly improves with a loss of €296 m in 2Q15, reduced from €367 m registered in 1Q15, thanks to lower costs by €35 m and a strong decrease in LLP (from €411 m in 1Q15 to €298 m).

Commercial Bank Italy continues to perform positively contributing for over 50% of the Core bank's profit with quarterly earnings equal to €570 m (+0.6% Q/Q) reaching €1.1 bn in 1H15 (+9.8% H/H). Revenues are up to €2.2 bn in 2Q15 (+1.0% Q/Q) and to €4.4 bn in 1H15 (+3.0% H/H) offsetting expenses and LLP. Net operating result at €903 m in 2Q15 (+4.1% Q/Q) and at €1.8 bn in 1H15 (+6.2% H/H).

CIB sound results supported by a positive contribution from all businesses with revenues at €993 m in 2Q15 (-5.9% Q/Q, +10.3% Y/Y) reaching €2.0 bn in 1H15 (+8.3% H/H). CIB's strong positioning is reflected also in the current League Table rankings #3 in "Loans & Bonds EMEA in EUR" [12]. The positive trend in commercial loans (+4.1% Q/Q, +5.5% Y/Y) is mainly driven by activity in Italy and Austria, with lower RWA (-€4 bn Q/Q) and 18.0% RoAC in 1H15 (+1.3pp H/H) confirming the efficiency of the division.

CEE net profit at €152 m in 2Q15 [13] (-14.8% Q/Q) and €252 m excluding the impact of €100 m of impairment related to Ukrsotsbank (+41.2% Q/Q), with positive operating performance supported by revenue growth more than offsetting costs. Revenues are up to €982 m (+4.4% Q/Q and 6.2% Y/Y at constant FX) with a positive trend of net interest (+0.5 Q/Q, +6.9% Y/Y), dividends (+33.6% Q/Q, +2.4% Y/Y) and sound fees dynamics (+7.6% Q/Q, +1.6% Y/Y) in all CEE countries. Sound asset quality confirmed by a strong coverage ratio at 52.2% in 2Q15 (+3.3% Q/Q).

Milan, August 5th 2015

Notes

[1]CET1 ratio fully loaded pro-forma assuming the full absorption of DTA on goodwill tax redemption and tax losses carried forward and Pekao minority excess capital calculated with 12% threshold.

[2]As of today, we registered a positive impact of rates on AFS reserves following market normalization after Greek turmoil.

[3]Leverage ratios for Jun-15 are based on the Capital Requirement Regulation definition considering the amendments introduced by EC Delegated Act. Leverage ratio fully loaded pro-forma assuming the full absorption of DTA on goodwill tax redemption and tax losses carried forward and Pekao minority excess capital calculated with 12% threshold.

[4]Leverage ratios for Jun-15 are based on the Capital Requirement Regulation definition considering the amendments introduced by EC Delegated Act. Leverage ratio fully loaded pro-forma assuming the full absorption of DTA on goodwill tax redemption and tax losses carried forward and Pekao minority excess capital calculated with 12% threshold.

[5]RoAC = Net profit/ Allocated capital. Allocated capital calculated as 9.25% of RWA, including deductions for shortfall and securitizations.

[6]Defined as customers loans  - (customer deposits + customer securities).

[7]Italian banking association - sample composed by c. 80% of Italian banking system (UCI S.p.A. is excluded), including exposures towards households and non-financial corporations.

[8]TLTRO settlement dates 24/09/14, 18/12/14 and 18/03/15. Out of €18 bn, €15.15 bn have been taken in Italy, €2.6 bn in Austria, €148 m in Czech Republic & Slovakia and €78 m in Slovenia.

[10] Direct funding defined as the sum of total customer deposits and customer securities in issue.

[9] Starting from the beginning of 2Q15, some activities that Bank Austria carries out in its capacity of sub-holding for CEE countries have been shifted from Commercial Bank Austria to CEE division. These activities mainly refer to Corporate Center. In 2Q15, CEE net profit includes also €100 m related to Ukrsotsbank impairment.

[11] Includes net other expenses / income.

[12]Source: Dealogic.

[13]Please refer to footnote 9.