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UNICREDIT: 2Q12 RESULTS

07.08.2012

GROSS OPERATING PROFIT HELD UP WELL, SUPPORTED BY COST CUTTING HELPING TO OFFSET HIGHER LOAN LOSS PROVISIONS

  • Gross operating profit held up well in the second quarter at €2.5 billion underpinning the resilience of the Group
  • E ffective cost management led to a 4.6% drop in operating costs in 2Q12 versus 2Q11, and -2.6% in 1H12 Y/Y
  • Loan loss provisions increased to €1.9 billion in 2Q12, whilst the overall coverage ratio in Italy went up in the quarter
  • Net profit for 1H12 stands at €1.1 billion, down by 18.0% Y/Y
  • Funding gap further improving, with deposits up throughout the Group (+2.8% Q/Q), notably in Italy
  • Sound liquidity position: available unencumbered assets covering more than 100% of wholesale funding maturing within 1 year
  • Conservative risk policy leads to a diversified exposure to Sovereign debt mirroring our regional presence; Italian exposure stable in the quarter
  • Core Tier I ratio stands at a solid 10.4%, and CET1 with full up-loading of Basel 3 is above the 2012 target

1H 2012 Key Figures

  • Group Net Profit: €1.1billion (-18.0% Y/Y), of which €477 million from buy-back of Tier I and Upper Tier II bonds in 1Q12
  • Revenues: €13.4 billion (-0.2% Y/Y),of which €697 million from buy-back of Tier I and Upper Tier II bonds
  • Operating Costs: €7.6 billion (-2.6% Y/Y)
  • Cost/Income ratio at 56.8% (-1.4 p.p. Y/Y)
  • Gross Operating Profit: €5.8 billion in 1H12 (+3.1% Y/Y, -9.4% net of buy-back)
  • Loan Loss Provisions: €3.3 billion (+23.6% Y/Y)
  • Balance Sheet and regulatory capital: Core Tier I at 10.4%, well above regulatory requirements

2Q 2012 Key Figures

  • Group Net Profit: €169million (-66.9% Y/Y), -61.3% Q/Q net of the €477 million from buy-back of Tier I and Upper Tier II bonds in 1Q12
  • Revenues: €6.2 billion (-3.2% Y/Y) down by 2.5% Q/Q excluding the €697 million from buy-back of Tier I and Upper Tier II bonds
  • Operating Costs: €3.7 billion (-4.6% Y/Y, -2.4% Q/Q)
  • Cost/Income ratio at 59.9% (-0.9 p.p. Y/Y, flat Q/Q excluding 1Q12 bond buy-back)
  • Gross operating profit: €2.5 billion (-1.0% Y/Y), -2.5%Q/Qexcluding bond buy-back in 1Q12
  • Loan Loss Provisions: €1.9 billion (+62.2% Y/Y, +36.6% Q/Q)

The Board of Directors of UniCredit approved the 2Q12 results on August3rd

Federico Ghizzoni, CEO of UniCredit says: ‘Despite a rapidly deteriorating global economic environment, UniCredit’s 2012 second quarter shows a good resilience of its gross operating profit, supported by the active implementation of the Strategic Plan’s cost reduction program. Net interest income resisted well, despite commercial volumes slowing down, as UniCredit reaps the benefit of its diversified business model; also the loan to deposit ratio is further improving. The decrease of our net profit is mostly due to our loan loss provisions, with overall coverage ratio up in Italy in the quarter. The turnaround in Italy is actively progressing as seen by first half improved operating profitability.’

GROSS OPERATING PROFIT RESILIENT SUPPORTED BY EFFECTIVE COST CONTROL

In spite of adverse macroeconomic conditions, the Group’s quarterly results showed resilience. Gross operating profit held up well despite low commercial loan demand in Italy, while decreasing interest rates put pressure on revenues. Net interest income was resilient even though the Group kept stable its stock of Italian Sovereign bonds. To tackle the difficult current situation, UniCredit is actively implementing the Strategic Plan cost cutting measures to mitigate unfavorable trends in revenues and loan loss provisions (LLPs).In 2Q12 operating costs decreased by 4.6% Y/Y (and by 2.4% Q/Q). In 1H12, the cost/income ratio reached 56.8%, versus 58.2% in 1H11. This result was in part due to an overall reduction of 2,921 Full Time Equivalents(FTEs)as of June 2012 versus the same period of2011, and by targeted managerial actions.

NEW ORGANIZATIONAL MODEL-COUNTRIES MORE ACCOUNTABLE

Following the decision of the Board on July 10th, UniCredit has launched a project to review its organizational set-up. This review should be completed by the end of 2012 and the final proposal is to be presented to the Board in December for its approval. The project envisage to create a leaner organization, streamlined decision making processes, and improved operational efficiency in line with the Strategic Plan and applicable regulatory requirements.

The Group is planning to move from a divisional view to a regional view in Italy, Germany, Austria and Poland, whilst CEE, Global Banking Services (GBS) and Asset Management will not be impacted by these organizational changes.

The CIB division will remain a global business line and going forward it will further strengthen its focus on multinational and large corporate customers, with clear investment banking needs regardless of turnover

NEW ORGANIZATIONAL MODEL-BRANCH NETWORK IN ITALY

The overall sector is undergoing a thorough evolution of the distribution model, with alternative channels growing in importance. UniCredit has successfully leveraged on these trends, having migrated the bulk of client transactions, with remote transactions increasing from 41% of total in 2008 to 73% in 2Q12 in Italy. The Strategic Plan drives this vision, supporting the reshaping of the service model, with a transformation of the majority of branches from fully-fledged to Cash Light and Cash Less. At the end of 2Q12, the Group has already met year-end 2012 objectives, with 26.5% of branches now in a Cash Light/Cash Less format, from 14.3% in2011.Total branches targeted by the Hub & Spoke

redesign project within the F&SME Network in Italy dropped by 142 from 3,790 at the beginning of 2011,down to 3,648 at the end of June 2012.

 

STRONG CAPITAL RATIOS-AHEAD OF BASEL III TARGET

As at June 30th 2012, the Group’s Basel 2.5 Core Tier I ratio stands at a solid 10.4%,improving by 8 bps versus March 31st 2012 mainly thanks to RWA management. Common Equity Tier 1 ratio (CET1) with full up-loading of Basel 3 is above the 2012 target and well above EBA requirements. This result was reached thanks to the €7.5 billion Rights issue successfully completed in the first quarter, a further boost from the buy-back of Tier I and Upper Tier II securities which added 10 bps, and active management of Market RWAs which dropped by €3.5 billion in 2Q12, primarily in the CIB division.

STRONG LIQUIDITY BUFFER

In line with the Strategic Plan objectives, the net negative interbank position, including the overnight deposits with Central Banks, stood at €34.1 billion, versus €44.5 billion at the end of the previous quarter[1]. Deposits from banks grew by €2.2 billion in the quarter, being more than offset by an increase in Loans to Central Banks(including overnight deposits with Central Banks).

The encouraging growth in deposits and lower demand for loans in Western Europe led to an improved loan deposit ratio of 133% at the end of June 2012, compared to 136% as of March 31st2012.

The Group’s sound liquidity position is confirmed: the liquidity buffer[2] of €116.1 billion more than covers all wholesale funding maturing in the next 12 months.

GROUP FUNDING PLAN ALREADY 68% COMPLETED 78% OF ITALIAN FUNDING PLAN COMPLETED

Thanks to the Group's well-diversified funding platforms, both in terms of geography and instruments, as of July 27th UniCredit already raised 68% of its 2012 funding plan. Specifically, 78% of the Italian 2012 funding plan has already been executed. As stated in the Strategic Plan, the Group is raising the bulk of its funding through network bonds, of which €9.6billion year to date.

FUNDING GAP IMPROVEMENT

In line with the objectives stated in the Strategic Plan, the Group’s funding gap further improved, decreasing by €8 billion in the quarter and reaching €66 billion. A relevant contribution to this improvement comes from Italy, thanks to a positive customers’ contribution.

DIVERSIFIED SOVEREIGN EXPOSURE

Asat June 30th, UniCredit held around €90billion of Sovereign bonds, primarily in countries where the group is active and has a strong presence, leading to a well-diversified Sovereign bond portfolio. Out of this,€41 billion were Italian Sovereign bonds, stable versus the end of the previous quarter.

UPDATE PROJECT BRONTOS

In addition UniCredit informs that on the date hereof settled the pending disputes with the Tax Authority relating to the tax treatment applied to certain structured finance transactions entered into by the Group in the 2007, 2008 and 2009 fiscal years including those referred to as “Project Brontos”. The "Brontos" transaction, as it was named by the counterparty Barclays Bank Plc, is included in these transactions. Although convinced that its actions and the actions of its representatives and employees, both present and former, were correct, UniCredit - also after having reviewed the opinion of its advisors on this matter - has adhered to the proposed tax assessment (so called ‘istituti deflattivi del contenzioso’) with the sole aim of mitigating the costs and risks connected with the duration and complexity of the tax litigation and of minimizing the impact of penalties, if any. Such settlement results in aggregate costs, including taxes and penalties, equal to € 264,435,422.22 million which will be covered by provisions created in previous periods.

Notes

1) The net negative interbank position is calculated considering ‘Loans and receivables with banks’ plus overnight deposits with Central Banks, included into ‘Cash and Cash Balances’, netted by ‘Deposits from banks’.

2) Including (a) unencumbered eligible assets immediately available, net of haircut, (b) Cash and (c) Loans to Central Banks. Additional eligible assets (available within 12 months) consist of all the other assets eligible within 1 year time (by the end of June 2013).

3) Funding Gap: Loans to customers minus (Deposits from customers + Bonds and Certificates of Deposit placed through the networks).

NOTE

Ukrsotsbank is one of the largest universal banks of Ukraine, operating in the local market since 1990. The bank offers full range of services to individuals and corporate clients.

The renovated Ukrsotsbank emerged on 31 October 2016 as a result of strategic deal whereby 99.9% of Ukrsotsbank shares have been transferred from UniCredit Group to ABH Holdings S.A. (АВНН) in exchange for a minority 9.9% stake in ABHH. Thus, the bank has combined 26-year-old traditions of Ukrsotsbank’s client-centric attitude, European quality of service inherent to UniCredit, as well as international banking expertise of ABHH in a number of European countries including CIS. Thanks to the successful synthesis and synergy of the two assets of ABHH in Ukraine, Ukrsotsbank and Alfa-Bank, the banking market of Ukraine will see the rise of a new stronger financial institution. This, in turn, will spur up technological advance, increase efficiency, improve quality of service for the clients, reduce cost of banking services whereas their range will inevitably expand.

The extensive retail network of Ukrsotsbank consists of 237 branches, its headcount reaching nearly 5 thousand employees.


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