UCG Unicredit Spa

   By Giovanni Legorano and Pietro Lombardi 
 

UniCredit SpA (UCG.MI), Italy's largest bank, posted better-than-expected results for the fourth quarter of 2019, although it swung to a net loss for the period largely due to one-off costs and provisions.

The bank also said it may return a bigger share of profits to shareholders in the coming years.

Shares jumped in reaction to the better results and higher dividend prospects. At midmorning they were trading around 5% higher.

"We see only positive news from this set of results: better than expected fourth-quarter results, stronger capital base, and possible upwards revision of the dividend policy," Banca IMI analyst Manuela Meroni said.

The results served as a capstone to a strategic plan the bank launched to tackle a number of issues, including a large pile of bad loans. Under the strategy, it cut costs and sold soured loans worth billions of euros.

The deep overhaul included the sale of number of assets including Polish lender Bank Pekao SA and asset management firm Pioneer Investments. More recently, it sold its stakes in online lender FinecoBank SpA and in Mediobanca SpA.

Earlier on Thursday it completed the sale of a 12% stake in Yapi ve Kredi Bankasi AS (YKBNK.IS) via an accelerated bookbuilding. It now owns 20% of the Turkish lender and will book a loss on the sale of 820 million euros ($906.1 million) in the first quarter of this year.

In December the lender unveiled a new four-year plan under which it pledged share buybacks and dividend increases, as well as job and cost cuts.

The margins it makes on lending have also been affected by lower lending volumes due to sluggish economic growth in key markets such as Italy.

The bank compensated the declining revenue on loans with higher fees and commissions and lower costs.

The loss for the fourth quarter was EUR835 million, better than the EUR1.10 billion loss analysts had forecast, according to a consensus provided by the bank. This compares with a profit of EUR1.99 billion a year earlier when an extraordinary tax effect boosted results.

On an underlying basis, net profit rose almost 69%.

The payout ratio could increase to 50% of underlying earnings starting this year and extraordinary capital distribution in 2021 or 2022 or both years will also be considered. The plan presented in December guided for capital distribution of 40% through 2022.

Revenue rose 3.4% to EUR4.85 billion, boosted by fees and trading income, also topping expectations of EUR4.66 billion.

Fees rose 5.1% while trading income more than doubled. This offset a 7.3% fall in net interest income--the difference between what lenders earn from loans and pay for deposits, and which is a key profit driver for retail banks.

The results for the quarter were hit by a number of one-offs, including restructuring costs in Germany and Austria, costs related to the sale of a stake in Turkish bank Yapi Kredi, and provisions for bad loans.

Write to Giovanni Legorano at Giovanni.Legorano@wsj.com and Pietro Lombardi at pietro.lombardi@dowjones.com

(END) Dow Jones Newswires

February 06, 2020 08:37 ET (13:37 GMT)

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