(Bloomberg) -- UniCredit SpA raised its full-year target for net revenue after higher income from fees and lending helped the bank’s second quarter profit top analyst estimates.
Net income at Italy’s second-biggest lender rose 16% to €2.68 billion ($2.9 billion), beating estimates. The Milan-based bank increased its guidance for revenue after loan-loss provisions to above €23 billion, it said in a statement on Wednesday.
Chief Executive Officer Andrea Orcel is seeking to keep improving results after posting a record profit last year on the back of higher interest rates and an efficiency drive he’s pursued since taking over in 2021. With the tailwind from rates set to fade, the bank’s strategy of seeking higher fee income is starting to pay off.
Fees grew strongly “across the board,” Orcel said in the statement, posting a 10% gain from a year earlier. The increase was driven by fees on investment, advisory and financing, and insurance and payments.
The lender targeted a faster build up of its capital buffers, a measure that demonstrates the ability to make payouts to shareholders. The bank also set aside €228 million in funds related to the decision by a Russian court to seize assets in the country.
UniCredit’s underlying performance may allow the bank to “substantially exceed” or “blow out” the bank’s net profit guidance, said Orcel during a conference call. He added that it’s too early to formally update the outlook now.
UniCredit shares pared earlier losses to trade down 0.8% at 11:53 a.m. in Milan, in line with broader European bank shares. The stock is up almost 60% this year.
The bank announced an interim distribution of about €1.4 billion in dividends and €1.7 billion in share buybacks.
Growth in Digital
UniCredit has agreed to buy banking services provider Vodeno and Belgian digital bank Aion Bank SA for about €370 million, as Orcel is ramping up investments in digitalization and technology.
The deal will see UniCredit bring more technological expertise in-house through its acquisition of cloud-based banking technologies and allow it to target new client segments, it said in a separate statement.
With rising valuations for bank stocks making new buybacks less attractive, investors are also looking for any potential takeovers Orcel may be eying. A longtime M&A banker, he struck his first large deal as UniCredit CEO last year by agreeing to buy the Greek state’s holding in Alpha Bank and acquiring Alpha’s Romanian unit.
While the CEO has said he sees very few targets for an “all in” acquisition, it is looking to bolt-on acquisitions in central Eastern Europe.
Streamlining Structure
UniCredit operating costs declined 1.7% and the cost to income ratio stood at 36.3% at the end of June, one of the lowest among European peers.
Orcel has exited businesses and cut jobs in non-core locations, shifting to more lucrative products and capital-light activities to streamline the lender. The executive is reviewing outsourcing contracts for services such as custody, payments, asset management and insurance to reduce costs and improve services.
UniCredit’s common equity tier 1 ratio, a key measure of financial strength, was stable at 16.2% at the end of June. While UniCredit booked negligible provisioning in the quarter, and reduced its extra provisions — so-called overlays — against potential losses at about €1.7 billion from €1.8 billion, its non-performing loan ratio further declined to 2.6% in the period. Orcel has repeatedly said the bank is well positioned for a period of macroeconomic uncertainty.
The bank booked €228 million in other charges and provisions.
UniCredit is looking to save costs by cutting staff numbers. In second quarter it shed some 700 positions bringing full-time equivalent employees at 69,454 at the end of June, according to separate filings published Wednesday. That means that the bank has reduced staff by about 12,500 since Orcel took over in early 2021.
(Updates with CEO comment in sixth paragraph)
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