UniCredit: 1Q21 Group Results. Excellent fees and seasonally low cost of risk underpin strong profitability

1Q21 underlying net profit of €0.9 billion^[1] thanks to a rebound in revenues, low cost of risk and continued cost discipline

Stated Cost of Risk^[2] at 15 basis points in 1Q21 thanks to seasonality, write-backs and the anticipation of future economic impacts^[3]  taken in 2020. FY21 underlying Cost of Risk now expected below 60 basis points^[4] 

Rock-solid balance sheet with very strong capital and liquidity position: 1Q21 fully loaded CET1 ratio at 15.92 per cent^[5], fully loaded CET1 MDA buffer at record high 689 basis points^[5]

FY21 revenues broadly in line with the consensus^[6] and costs expected in line with FY19 levels; underlying net profit expected broadly in line with previous guidance

On 05 May 2021, the Board of Directors of UniCredit S.p.A. ("UniCredit" or "the Group") approved the consolidated results of the Group as at 31 March 2021.

In 1Q21, the Group delivered revenues of €4.7 billion, boosted by a rebound in trading income and record fees which together more than offset persistent net interest income headwinds. The excellent fee performance was underpinned by very strong investment fees, testament to the strength of UniCredit's distribution network.

The Group's continued focus on cost efficiency and strong cost discipline resulted in significant operating leverage in 1Q21, leading to the lowest cost/income ratio in more than a decade at 51.5 per cent. This was possible thanks to faster than expected FTE reductions resulting in lower HR costs year on year and better Non HR costs year on year driven by lower travel and real estate expenses.

The stated cost of risk^[2] for the Group was very low in 1Q21 as a result of seasonality as well as write-backs and UniCredit's anticipation of future economic impacts^[3] taken in 2020. The FY21 underlying cost of risk is now expected to be below 60 basis points. This guidance includes modest overlay provisions through the rest of FY21.

The Group delivered a strong underlying net profit of €0.9 billion for 1Q21 thanks to a rebound in revenues, despite the ongoing impact of lockdowns on client activity in the quarter, as well as to a lower cost of risk.

UniCredit's rock solid balance sheet and strong capital and liquidity position are reflected in the fully loaded CET1 ratio at 15.92 per cent⁵ with a record-high fully loaded CET1 MDA buffer at 689 basis points^[5] and a Liquidity Coverage Ratio at 183 per cent^[7] in 1Q21.

In 2021, the ordinary distribution is €447 million^[8], the cash distribution of €268 million was paid on 21 April 2021 and the SBB distribution of €179 million, approved by ECB and AGM, is expected to be completed by the end of 3Q21. In addition, a resolution for an extraordinary distribution after 1 October 2021 has been approved by the AGM in April for an amount of €652 million, entirely in the form of share buybacks, subject to ECB approval.

Combining the ordinary and extraordinary distributions for a total amount of €1.1 billion would equate to a total yield of around 6 per cent in FY21^[9]. The ordinary distribution policy is confirmed at 50 per cent of underlying net profit^[1] , with the cash dividend being accrued at 30 per cent.

UniCredit expects FY21 underlying net profit broadly in line with previous guidance with revenues broadly in line with the consensus^[6]. FY21 costs are confirmed in-line with FY19 levels. The full Non Core runoff by FY21 is confirmed.

The strategic review initiated following the arrival of the new CEO and the new Board of Directors is expected to be concluded in 2H21 and will be communicated at a Capital Markets Day.

Andrea Orcel, Chief Executive Officer of UniCredit S.p.A. :

"A strong net profit driven by a notable uptick in fees and trading, a seasonally low cost of risk supported by write-backs, and continued cost discipline: all of them more than offsetting persistent headwinds to net interest income. I congratulate the whole team for the hard work and determination that has led to this positive result.

Following decisions taken on risk appetite in the past, net interest income will likely continue to face headwinds also relative to competitors for some time. We may also not benefit to the same extent in the future from the compensating positive factors we have seen this quarter.

As we look to the future, it will take time to re-energise and strengthen the business, moving from a period of active retrenchment to one defined by disciplined profitable growth and healthy organic capital generation.

We will reinforce client centricity in everything we do. We will deliver increased integration of technology and simplify the business as we seek to remove blockers and obstacles that prevent us from adequately serving our clients.

Time is required to ensure that changes are done, always in the long term best interest of this business, with the immediate focus being the assessment, review and delivery of a plan that will determine our strategy for the coming years."

Stefano Porro, Chief Financial Officer of UniCredit S.p.A. :

"UniCredit's underlying net profit has improved in the first quarter to €0.9 billion. This is a strong performance and an encouraging start to the year given the continuing impact of Covid-19 on economies and people's lives.

We saw a rebound in our revenues, with the highest level of fees in over five years and a strong pick-up in trading activity. This recovery in top-line performance, coupled with strict cost discipline saw us deliver our lowest cost-income ratio in over a decade at 51.5 per cent. We also saw a low cost of risk as credit quality remained stable.

This has allowed us to return capital to shareholders, with a total capital return planned for this year of over €1 billion through dividends and buybacks, which would translate into a yield of around 6 per cent. We have done this while maintaining our capital strength, closing the quarter with a fully loaded CET1 ratio of 15.92 per cent and a record CET1 MDA buffer for the bank.

This is a performance that all UniCredit team members should be proud of and it gives us a strong base on which to build our future. I look forward to working with Andrea and the board on the new strategic plan."

Notes:

[1] Underlying net profit is the basis for the ordinary distribution policy. Underlying net profit normalised for revaluation of real estate (+€4 m in 1Q21). Stated CoR based on reclassified P&L and Balance sheet (BS).

^[2] Stated CoR based on reclassified P&L and Balance sheet (BS).

^[3] Anticipation of future economic impacts: increased overlays, proactive classification and regulatory headwinds including new Definition of Default.

[4] Underlying CoR: defined as stated CoR excluding regulatory headwinds.

[5] Including the deduction of the share buyback of €179 m, but not yet including the extraordinary share buyback of €652 m already approved by the AGM and subject to ECB approval (provided that on 30 Sep 21 the ECB will repeal the recommendation of 15 Dec 20).

[6] Based on company compiled consensus published on 26 Apr 21 at https://www.unicreditgroup.eu/en/investors/equity-investors/consensus.html.

[7] Liquidity coverage ratio shown is point in time ratio as of 31 Mar 21, regulatory figure published in Pillar 3 as of 1Q21 will be 180 per cent (trailing 12M average).

[8] Ordinary distribution (€447 m): 60 per cent cash (€268 m), 40 per cent Share buyback (€179 m) ('SBB'). Ordinary cash distribution: €0.12 per share approved by AGM and paid on 21 Apr 21. Ordinary SBB execution approved by ECB and AGM and expected to be completed by end 3Q21. Extraordinary distribution (€652 m): 100 per cent SBB. Extraordinary SBB distribution approved by AGM in April 2021 and subject to supervisory approval (and provided that on 30 Sept 21 the ECB will repeal the recommendation of 15 Dec 20). Extraordinary SBB execution expected to commence not before 1 Oct 21.

^[9] FY21 dividend yield calculated as FY21 total distribution of €1,099 m (FY21 ordinary distribution of €447 m + FY21 extraordinary distribution of € 652 m which is subject to supervisory approval and provided that on 30 Sept 21 the ECB will repeal the recommendation of 15 Dec 20) divided by the market cap as at 03 May 21 equal to €19,509 m, resulting in an estimated FY21 dividend yield of 5.6 per cent.

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