(Bloomberg) -- UniCredit SpA surged to the highest in more than eight years after the bank boosted shareholder returns on 2023 profit to €8.6 billion ($9.3 billion), once again raising the payout benchmark for European banks. 

UniCredit shares rose as much as 8.5% to the highest since November 2015 at the open and were up 8.2% to €28.86 as of 9:08 in Milan. The bank has tripled its value since Chief Executive Officer Andrea Orcel took over in 2021, leading gains among European banks.

Italy’s second-biggest lender posted a stated net income of about €2.81 billion in the final quarter of last year, almost three times analyst forecasts, on higher-than-expected revenue, lower provisions for bad loans and a gain related to deferred tax assets. The bank is distributing 100% of adjusted net profit for the year and plans to return at least €7.7 billion on 2024 profit.

UniCredit is “smashing it” with better profit, higher distribution and improved 2024 outlook, Citigroup Inc. analyst Azzurra Guelfi wrote in a note. The “stock is one of most loved in the sector, but the story continues to over-deliver.”

Improved Outlook

Orcel has enjoyed a tailwind from rising European interest rates and the effects of an efficiency drive that he’s pushed through since taking the helm of the bank in 2021. While the lender has cheered investors with the best returns in the region, like its peers UniCredit is now facing a weakening economy and an end to rate hikes. 

Read More: Orcel’s Money Machine Has $10 Billion to Reshape Europe Banking

The Milan-based lender has distributed almost €18 billion in a mix of cash dividends and share buybacks since 2021, meeting its end-2024 goal a year ahead of schedule. Starting this year the lender will introduce an interim dividend and plans to distribute at least 90% of its net adjusted profit, it said in the statement.

“Resilient asset quality and strong lines of defense put us in an enviable position to continue managing successfully through an uncertain environment,” Orcel said in the statement. 

Revenue rose 4.6% from a year earlier as the bank reaps the benefit of higher interest rates. Orcel is now seeking to focus more on fee-generating businesses as a second profit engine.

Among the changes that Orcel is undertaking is rebuilding revenue-generating ‘product factories’ to develop new services and boost fees. He said that this year he’s expecting lower net interest income as customers demand higher rates on their deposits.

What Bloomberg Intelligence Says:

UniCredit’s across-the-board beats to 4Q consensus suggests solid profitability in 2024, with a credible goal of sustaining a return on tangible equity similar to 2023 mid-16% level. Total shareholders’ distribution attributable to the 2023-24 financial years could amount to nearly €16 billion, we calculate, about 35% of its market capitalization. The bank’s 2024 interest-rate assumptions looks realistic and asset quality remains benign.

— Lento Tang, Ilia Shchupko, BI analysts. for the full note click here. 

UniCredit intensified cost cutting, with the Italian lender shedding some 1,350 positions in the fourth quarter. The Milan-based bank’s full-time equivalent employees stood at 70,752 at the end of December, according to filings published Monday. The bank booked €1.1 billion integration costs in 2023.

UniCredit’s common equity tier 1 ratio, a key measure of financial strength, stood at 15.9% at the end of December. The bank set aside €300 million for bad loans in the quarter, less than half of analysts expectations. Orcel has often said the bank is “well positioned” for a period of macroeconomic uncertainty with extra provisions — so-called overlays — against potential losses confirmed at about €1.8 billion. 

--With assistance from Macarena Muñoz and Antonio Vanuzzo.

©2024 Bloomberg L.P.