(Bloomberg) -- UniCredit SpA (SIX:CRDI) rode cost reductions to a report a second quarter profit that beat estimates as Chief Executive Officer Jean Pierre Mustier executes parts of his turnaround plan ahead of schedule.
Mustier is ramping up savings and improving asset quality to keep his promise of building a leading pan-European bank. The bank is selling billions of euros of bad loans as part of the clean-up as the CEO pursues a target of 4.7 billion euros of annual net income in 2019.
The bank expects to reach its target for cutting branches and staff ahead of schedule, Milan-based UniCredit said in a statement on Tuesday. Lower costs and reduced provisions for bad loans boosted net income to 1.02 billion euros, ($1.2 billion) beating the 930.6 million-euro average of 5 analyst estimates compiled by Bloomberg.
“UniCredit reported a solid beat to consensus, the market will like the net interest income and cost beat as well as the fast improving asset quality,” Andrea Filtri, an analyst at Mediobanca SpA, wrote in a report.
The lender is speeding up the reduction of its soured debt as Mustier has made cleaning up the balance sheet a pillar of his tenure. UniCredit expects its non-performing exposures to be down by the end of the year with a target of 2 billion euros of NPE disposals.
“UniCredit delivered strong results in a challenging market during the second quarter,” Mustier said during a conference call with reporters. “By the end of this year, we expect to be close to finalizing the announced Transform 2019 branch closures in Western Europe,” as well as the planned staff reductions.
UniCredit rose as much as 2.6 percent in Milan trading and was up 2.3 percent at 14.71 euros as of 11:47 a.m., giving the bank a market value of 32.5 billion euros. UniCredit is trading at about 0.60 times its tangible book value compared with 0.94 times at Italian rival Intesa Sanpaolo (MI:ISP) SpA.
While operating costs and loan-loss provisions fell, analysts point out that the results also show show that revenue pressure at UniCredit is easing.
“The profit beat was supported by strong core revenues,” Jefferies analysts Benjie Creelan-Sandford and Marco Nicolai wrote in a note, highlighting higher volumes and lower funding costs.
UniCredit is among the biggest banks in central and eastern Europe, serving 25 million clients in 14 countries including Russia and Turkey. The central and eastern Europe division was the largest contributor to second-quarter profit, with net income up 2.3 percent to 472 million euros.
Concerns about the direction of Italy’s populist government drove up Italian bond yields in the quarter, hitting the capital buffers of banks holding the debt. UniCredit’s common equity tier 1 ratio, a key measure of financial strength. fell to 12.51 percent from 13.06 percent at the end of March.
UniCredit is confident that it will reach an agreement with U.S. authorities this year over an ongoing investigation involving possible violations of sanctions against Iran, Mustier said on a conference call.
(Updates with CEO comments on Iran investigation in final paragraph.)
