By Valentina Za
MILAN (Reuters) -UniCredit on Tuesday reported better than expected 2024 earnings and said it aimed to keep profit stable this year despite declining interest rates, vowing to increase investor rewards between 2025 and 2027 unless it can strike deals.
After years of record profits and investor payouts fuelled by the European Central Bank’s rate hiking cycle, European lenders are looking for new profit drivers, and some have turned to mergers and acquisitions.
Under CEO Andrea Orcel’s leadership, UniCredit is pursuing an aggressive expansion, building a 28% stake in Germany’s Commerzbank and launching an all-share bid for smaller domestic peer Banco BPM.
Earlier this month, the bank said it had taken a 4.1% stake in Generali, Italy’s biggest insurer, an investment which also gives it influence in other takeover and boardroom battles unfolding in Italian finance.
UniCredit said it would pursue external growth options only “if they meet strict strategic and financial parameters”.
By shrinking the bank’s assets and focusing its business on capital-light activities, Orcel has accumulated 6.5 billion euros in cash in excess of targeted capital reserves.
He has pledged to return that money to shareholders by 2027, on top of ordinary payouts, unless he managed to seal acquisitions.
UniCredit investors will receive 9 billion euros ($9.3 billion) in share buybacks and dividends from the bank’s 2024 profits, which reached 9.3 billion euros net of tax benefits, helped by a still rising net interest margin, a measure of profit from the gap between lending and deposit rates.
JPMorgan analysts said the payout surpassed expectations, as did the guidance for an even higher distribution in 2025 and UniCredit’s 2027 profit target of 10 billion euros.
“Management outlook reads well,” KBW analysts said in a note.
UniCredit shares fell 3.4% by 0845 GMT, underperforming the European sector, with traders saying investors were pocketing gains after a 50% rise over the past year.
The fall also followed a report in Tuesday’s Corriere della Sera newspaper, that long-standing UniCredit shareholder Delfin could cut its 2.7% stake. Delfin declined to comment.
“My job is to make it the wrong decision ex post facto if they are indeed considering to sell, because so far they haven’t,” Orcel told CNBC television on Tuesday.
Delfin, the holding company of late Ray-Ban magnate Leonardo Del Vecchio, has recently increased investments in Italy’s banking sector to play a role in the industry’s consolidation.
Since Orcel’s arrival in 2021, UniCredit has boosted shareholder returns, driving a near six-fold increase in its share price, which gives it a strong hand in merger deals paid for, at least in part, in shares.
UniCredit forecast net interest income, which rose more than expected in the fourth quarter, would post “a moderate decline” in 2025, due to lower euro zone interest rates but also efforts to shrink its Russian business.
UniCredit faces ECB demands to speed up its exit from the country.
A “mid-single digit” increase in fees projected for 2025 would not be enough to offset the drag from lower rates, with net revenues seen falling to above 23 billion euros from 24.2 billion last year, it said.
Profit in the October-December period totalled 1.97 billion euros, above a 1.63 billion euro company-gathered consensus forecast, despite higher than expected provisions for loan losses.
That compared with 2.8 billion euros a year ago, when the boost from tax credits linked to past losses was more than twice as big.
($1 = 0.9706 euros)
(Reporting by Valentina Za; Editing by Alvise Armellini, Kate Mayberry and Tomasz Janowski)
