UniCredit raises investor reward goal after strong quarter

By Valentina Za

MILAN (Reuters) -UniCredit raised its investor reward guidance for the year, and said it would pay out even more in the following two, after reporting much higher than expected quarterly net income on Tuesday.

Shares in Italy's second biggest bank, which have risen fourfold since Chief Executive Andrea Orcel took over in April 2021, hit a new 13-year high, jumping 3.6% to 36 euros per share.

"We continue to outperform expectations and peers," Orcel told analysts.

A former investment banking chief at UBS, Orcel has focused on activities that maximise returns from capital deployed and delivered stellar payouts to investors, mostly through share buybacks.

Having returned nearly 18 billion euros ($19 billion) to shareholders over the past three years, Orcel indicated shareholders stood to pocket at least another 26 billion in 2024-2026.

By 2027 at the latest, UniCredit will decide whether to return further excess capital the bank has accumulated if it fails to find a merger and acquisition deal that guarantees comparable returns.

A veteran dealmaker, Orcel has so far shied away from acquisitions though he sees M&A as a way to accelerate growth. He had set a 2024 deadline to decide on the use of the excess capital, which he is pushing back after securing a new three-year mandate in April.

FEES JUMP, LOAN LOSSES SHRINK

In the three months to March 31 net profit totalled 2.6 billion euros, against the 2.13 billion euro average of analyst forecasts compiled by the company.

Revenue also topped expectations as UniCredit joined bigger rival Intesa Sanpaolo in highlighting a recovery in net fees, which jumped 16% quarter on quarter, while income from the gap in lending and deposit rates eased by 0.9%.

Profit was also aided by trading gains and much lower than expected provisions against loan losses thanks to writebacks on loans in central and eastern Europe and Russia, a market where UniCredit's profit more than doubled in the quarter.

With interest rates peaking, banks are working to replace profit from the lending business with fees earned on the sale of investment products, which UniCredit grew by 36% in the quarter.

For the full year, net income is expected to be above 8.5 billion euros, the bank said, having previously guided for a 2024 net profit broadly in line with 2023.

After stripping out a boost from tax credits, the bank's net income last year was 8.6 billion euros, which it paid out in full to shareholders through share buybacks and dividends.

UniCredit said it would match that distribution this year. Having set a 90% payout goal for 2024, that suggests it expects net income to reach about 9.6 billion euros or it will pay out part of its excess capital reserves.

Core capital, a key measure of a bank's financial strength, rose to 16.2% of risk-weighted assets (RWAs) from 15.9% at the end of last year, surpassing expectations. RWAs shrunk in the quarter, partly owing to reduced lending but also to risk-transfer transactions the bank carries out to free up capital.

($1 = 0.9276 euros)

(Reporting by Valentina ZaEditing by David Goodman and Susan Fenton)