UniCredit Group consolidated results for the first half 2010

 Press-Release

The Board of Directors of UniCredit approved the consolidated results for first half 2010 which show the Group’s portion of net profit at €669 million, €148 million of which in the second quarter. This figure reflects a goodwill impairment of €162 million related to the subsidiary in Kazakhstan.

 

Furthermore, the Board of Directors, within One4C Project and following the approvals by the shareholders’ meetings of the involved companies, has approved the merger into UniCredit S.p.A. of UniCredit Banca S.p.A., UniCredit Banca di Roma S.p.A., Banco di Sicilia S.p.A., UniCredit Corporate Banking S.p.A., UniCredit Private Banking S.p.A., UniCredit Family Financing Bank S.p.A. and UniCredit Bancassurance Management & Administration S.c.r.l. pursuant to section 2505, paragraph 2 of the Italian Civil Code. The Board of Directors has also resolved on the merger into UniCredit S.p.A. of UniCredit Partecipazioni S.r.l. It is expected that both mergers will have legal effects as at November 1^st, 2010.

 

Going back to the Group’s quarterly results, of note is the solid performance of the main income statement items (net interest and commissions are up, costs are under control and loan loss provisions are down). The positive trend of the main income statement lines is however counterbalanced by the drop in net trading, hedging and fair value income (-€502 million QoQ) attributable to the decidedly less favourable conditions of the financial markets, impacting the QoQ evolution of net profit.

Operating income reaches €13,299 million in the first six months of 2010, a drop of 9.0% YoY on a constant currency and perimeter basis, and €6,493 million in second quarter  2010, -4.6% QoQ. The evolution YoY and QoQ both reflect the trend in net trading, hedging and fair value income which was impacted by the government debt crisis, particularly in second quarter 2010.

Net interest amounts to €7,895 million in first half 2010 (-16.5% YoY on a constant currency and perimeter basis, reflecting an unquestionably less favourable interest rate environment). In the second quarter net interest reaches €3,977 million, an increase of €60 million QoQ (+1.5%), with a positive contribution in terms of volumes (particularly in CEE and  CIB in Germany) and an additional value day which was partially offset by a slight squeeze in the commercial spreads.

Net commissions amount to €4,379 million in the first six months of 2010, a noticeable increase (+15.5% on a constant currency and perimeter basis) with respect to the €3,735 million reported in the same period of the prior year, confirming the good recovery of the asset management activities, as well as the satisfactory performance of the other commission items. Net commissions in second quarter 2010 amount to €2,209 million, +1.9% QoQ despite lower commissions from securities dealing, placement and other services (-11.0% QoQ due to a slowdown in market activities), which are more than compensated by the commissions from investment management services and by the other commissions (driven by the strong performance of commissions from currency trading and other services) which are up +4.1%.  At June 30th 2010, the volume of the assets managed by the Group’s Asset Management Division amounts to €185.5 billion, a slight increase QoQ.

Net trading, hedging and fair value income amounts to €618 million in first half 2010, down with respect to the €936 million reported in the same period in 2009. This performance is attributable primarily to the deterioration of the financial markets following the government debt crisis in second quarter 2010, which closed with the Group’s net trading, hedging and fair value income at €58 million (versus €560 million in first quarter 2010).

Other net income in the first six months of 2010 comes in at €213 million (€114 million of which in the second quarter), in line with respect to the €209 million recorded in the first six months of 2009.

Operating costs amount to €7,817 million in first half 2010, an increase of 0.7% YoY on a constant currency and perimeter basis, above all due to the inclusion in the first half 2009 accounts of the release of provisions for variable compensation of €119 million (initially charged in 2008). The operating costs in second quarter 2010 amount to €3,939 million, up with respect to the €3,878 million recorded in the prior quarter (+€61 million QoQ due primarily to the currency effect and cyclical elements).

Other administrative expenses, net recovery of expenses, reach €2,533 million in the first six months of 2010, a slight drop with respect to the €2,539 million reported in the same period 2009 (but with a reduction of 1.4% YoY on a constant currency and perimeter basis). In second quarter  2010 the figure reaches €1,293 million, an increase with respect to the €1,240 million recorded in the prior quarter, largely attributable to the currency effect and cyclical expenses (for example, consultancies and marketing).

Amortization, depreciation and impairment losses on intangible and tangible assets amounts to €631 million in first half 2010, compared to €606 million in the same period 2009. In second quarter 2010 the figure reaches €314 million, down with respect to the €317 million recorded in the prior quarter.

The cost/income ratio reaches 58.8% in first half 2010 (60.7% in the second quarter), up with respect to first half 2009 (53.4%).

Operating profit in the first six months of 2010 amounts to €5,482 million, €2,554 of which posted in the second quarter. The result reflects the €502 million drop QoQ in trading income caused by different market conditions. Excluding trading income, the operating profit in second  quarter 2010 rises  5.5% with respect to the prior quarter.

The provisions for risks and charges increase YoY to €262 million in first half 2010, €106 million of which posted in the second quarter (down with respect to the €156 million recorded in the prior quarter).

Loan loss provisions and provisions for guarantees and commitments in first half  2010 amounts to €3,507 million (a reduction from more than €4 billion relative to the same period in 2009), equal to a cost of risk of 125 basis points annualized. In the second quarter, loan loss provisions show a decrease for the fourth consecutive quarter (at €1,716 million from €1,791 million in first quarter 2010).

In first half 2010 the Group’s portion of net profit amounts to €669 million compared to  €937 million in the same period of the prior year (-€268 million YoY), which had benefited from a greater contribution of trading income to revenues (of €318 million) and which was not impacted by the non-recurring charge of €162 million related to goodwill impairment.  The slowdown in the contribution of trading income to revenues (-€502 million QoQ), as well as the impact of the impairment losses is even more evident in the quarter with net profit dropping from €372 million to €148 million.

In second quarter 2010 the Group’s customer loans reach €559 billion (€564 billion at  March 2010) with a reduction that is attributable to the Corporate Centre and signs of recovery in the commercial business (above all in a few CEE countries and in the CIB division in Germany). Direct funding[1] at June 2010 comes in at €577 billion (versus €593 billion at March 2010), with a solid dynamic in terms of deposits and securities placed by the Group’s commercial networks and a drop in the other securities. This decline involved primarily short term instruments expiring within one year (in line with the sector trend) and was temporarily offset in the interbank market through a drop in assets and an increase in repos with other banks. The loan-direct funding ratio at June 2010 comes in at 96.8%, testimony to the balanced funding structure. Net interbank funding at June 2010 amounts to €35 billion (€21 billion at March 2010).

Total assets at June 2010 amount to €955 billion, largely unchanged with respect to March 2010, with a balance sheet structure that maintained its high quality even in a difficult funding environment. The Group’s leverage ratio[2] at June 2010 reaches 22.3, an increase with respect to the 21.6 recorded at March 2010, also explained by the increase in the derivatives’ market value and the payment of dividends for the prior year (which took place, as usual, in the second quarter).

The Core Tier 1 ratio at the end of June 2010 reaches 8.41%, a drop QoQ of 4 basis points due primarily to an increase in risk weighted assets and to dividends accrual, which more than offset the positive contribution of the profit posted in the period. In second quarter 2010 the risk weighted assetsrise 0.7% QoQ to €459.0 billion due to the currency effect, but also to resumed growth in a few areas (CEE, above all Turkey, CIB in Germany). The Tier 1 ratio comes in at 9.38% and the Total Capital Ratio at 12.74%.

At the end of June 2010the Group’s structure consists of astaff[3]of 161,857, a further reduction of 6,150 relative to June 2009 and 521 relative to March 2010. The decrease in the second quarter is attributable to different areas, with the largest drop coming from Retail, CIB and  corporate structures (Corporate Centre and GBS).

The Group’s network at June 2010 consists of 9,578 branches (9,974 at June 2009 and 9,637 at March 2010).

 

 

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