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The Unicredit Group in 2009: Balance Sheet and Capital Structure Strengthened, Constant Improvement in Costs; net Profit of €1,702 Million

22.03.2010

The UniCredit Group in 2009: Balance Sheet and Capital Structure Strengthened, Constant Improvement in Costs; Net Profit of €1,702 Million

FULL YEAR 2009:

  • The Group’s portion of net profit €1,702 million
  • Operating income €27,572 million, +2.6% YoY
  • Operating profit €12,248 million, +20.3% YoY
  • Balance sheet strengthened: total assets, trading and net interbank exposure reduced, leverage ratio improved
  • Capital strengthened: Core Tier 1 ratio reaches 7.62%, +104 bp with respect to December 2008 post CASHES. Pro – forma the capital increase successfully completed in February 2010: Core Tier 1 ratio 8.47%
  • Constant improvement in operating costs: -8.2% YoY; Cost/income ratio of 55.6%
  • 2009 cash dividend of €0.03 per share

FOURTH QUARTER 2009:

  • The Group’s portion of net profit €371 million, versus €394 million in 3Q09
  • Operating income €6,443 million; quarterly trend shows growth in net commissions and, in line with the sector trend, a drop in net trading, hedging and fair value income
  • Operating costs €3,803 million, dropping further QoQ
  • Loan loss provisions €2,068 million, with the cost of risk dropping for the second quarter in a row to 146 bp
  • Operating profit €2,640 million, down due to a drop in net trading, hedging and fair value income with respect to 3Q09
  • 21 bp of the Core Tier 1 ratio generated in the quarter; up 7 bp including the effect of the dividend, booked entirely in the fourth quarter

The Board of Directors of UniCredit approved the consolidated results for 2008 which show the Group’s portion of net profit at €1,702 million, €371 million of which generated in the fourth quarter.

The fourth quarter 2009 performance provides further confirmation of a few positive elements that emerged during the third quarter, such as: improvement in the balance sheet and capital structure, declining operating costs and increasing net commissions. There was also a drop in net trading, hedging and fair value income, which was impacted by a sectorwide slowdown with respect to the excellent performance recorded in the first three quarters of 2009.

In 2009 operating income reaches €27,572 million, an increase of 2.6% YoY (7.2% YoY on a constant currency and perimeter basis), and €6,443 million in fourth quarter 2009, an increase of 5.7% YoY but a drop QoQ due almost entirely to the decrease in trading income.

Net interest held well YoY coming in at €17,304 million in 2009 (-5.8% YoY, but only -1.9% YoY on a constant currency and perimeter basis), despite the elimination, in third quarter 2009, of overdraft charges and the less then favourable interest rate environment. In the fourth quarter net interest amounts to €4,017 million, an increase with respect to the €3,927 million recorded in third quarter 2009, thanks to a lower cost of wholesale funding and non-recurring items.

Net commissions total €7,780 million in 2009, a drop with respect to the €9,093 million reported in the prior year, due to a much more unfavourable asset management sector. If we look at the quarterly trend, rather, after reaching the low for the year in the first quarter, net commissions begin to show clear signs of strengthening with the fourth quarter even recording growth both QoQ and YoY (net commissions in fourth quarter 2009: €2,114 million; in third quarter 2009: €1,931 million; in fourth quarter 2008: €2,090 million). Furthermore, as in the third quarter, both commissions from asset management, custody and administration and other commissions record an increase QoQ (14.9% and 6.1%, respectively). At December 31st, 2009 the volume of the assets managed by the Group’s Asset Management Division amounts to €175.8 billion, an increase of 2.2% QoQ.

Net trading, hedging and fair value income in 2009 amounts to €1,803, a significant recovery with respect to the -€1,969 million recorded in 2008 and confirmation of the Group’s ability to react quickly to improved market conditions. In fourth quarter 2009 net trading, hedging and fair value income amounts to €152 million, positive despite a quarter which was much more unfavourable for the investment banking business, but still less than the excellent result recorded in third quarter 2009 (€715 million).

In 2009 other net income of €373 million (€69 million of which in the fourth quarter), is basically in line with the €368 million reported in 2008.

Operating costs amount to €15,324 million in 2009, a decided reduction with respect to 2008 (-8.2% YoY and -5.3% YoY on a constant currency and perimeter basis). Looking at the quarterly trend, the Group was able to minimize the negative effects of seasonal expenses and operating costs amount to €3,803 million in fourth quarter 2009, less than the €3,831 million recorded in the prior quarter.

In 2009 payroll costs drop a noticeable 8.3% YoY (5.8% YoY on a constant currency and perimeter basis), coming in at €9,098 million. In fourth quarter 2009 the figure reaches €2,277 million, in line with the €2,276 million recorded in the prior quarter and less than the €2,385 million recorded in fourth quarter 2008.

Other administrative expenses, net of recovery of expenses, reach €4,945 million in 2009, a strong drop with respect to the €5,462 million reported in 2008 (-9.5% YoY, -6.0% YoY on a constant currency and perimeter basis). In fourth quarter 2009 the figure totals €1,176 million, a decline with respect to the €1,230 million reported in third quarter 2009 and to the €1,436 reported in the last quarter of 2008.

Amortization, depreciation and impairment losses on intangible and tangible assets in 2009 amount to €1,281 million, compared to €1,312 million in 2008. The figure reaches €350 million in fourth quarter 2009.

The cost/income ratio comes in at 55.6% in 2009 (59.0% in the fourth quarter), showing marked improvement over the prior year (62.1%).

Operating profit in 2009 amounts to €12,248 million, €2,640 million of which in the fourth quarter (lower than in the prior quarter due to the decrease in net trading, hedging and fair value income).

In 2009 provisions for risks and charges increase YoY reaching €609 million, €232 million of which in the fourth quarter.

Net impairment losses on loans and provisions for guarantees and commitments amount to €8,313 million in 2009, equal to a cost of risk of 142 basis points. In fourth quarter 2009 the item decreases with respect to the prior quarter (from €2,164 million in third quarter 2009 to €2,068 million).

Gross impaired loans at the end of December 2009 total €57.6 billion, an increase of 7.7% QoQ (9.2% QoQ net the effect of the cancellation of default interest in Poland). Gross NPLs, the highest risk category, are unchanged QoQ (+2.1% QoQ net the effect of the cancellation of default interest in Poland), while the lower risk categories maintain double digit growth QoQ, 20.0% QoQ (20.1% QoQ net the effect of the cancellation of default interest in Poland).

The coverage ratio of total gross impaired loans at December 2009 is 46.1% which reflects a 61.3% coverage of the NPLs and a 26.0% coverage of the other problem loans.

Integration costs amount to €258 million in 2009, an increase with respect to the €140 million recorded in 2008 reflecting, above all, the significant commitment to greater staff efficiencies. In fourth quarter 2009 conditions were such that a part of the prior provisions could be released and, therefore, the quarter figure is a positive €63 million.

Net investment income totals €232 million in 2009, an increase with respect to the €207 million recorded in the prior year. Fourth quarter 2009 shows positive net investment income of €217 million, compared to €181 million in the prior quarter due, above all, to the pre-tax capital gain from the disposal of the quotas held in the real estate fund Omicron.

In 2009 income tax for the period amounts to €1,009 million (an increase with respect to the €627 million recorded in the prior year, which benefited from the positive effects of goodwill deductions), with a tax rate of 30.6%. Income tax in fourth quarter 2009 amounts to €124 million.

Minorities in 2009 amount to €332 million compared to €518 million in 2008, which still did not reflect fully the purchase of the minority interests in HVB and UniCredit Bank Austria. In fourth quarter 2009 minorities amount to €63 million.

The impact of the Purchase Price Allocation drops in 2009 from the -€301 million recorded in 2008 to -€257 million, -€62 million of which attributable to the fourth quarter.

The Group’s portion of net profit in 2009 is €1,702 million compared to €4,012 million in the prior year, achieved, however, under much less favourable global macroeconomic conditions. The quarterly trend shows profit dropping from €490 million in second quarter 2009 to €394 million in third quarter 2009, reaching €371 million in fourth quarter 2009.

Total assets at December 2009 total €929 billion (€958 billion at September 2009), a drop of 3.0% QoQ and of 11.2% since the beginning of 2009 (-€117 billion). Please note that the reduction in the balance sheet items was achieved by paying special attention to certain areas. In 2009 the trading assets fall by €71 billion, reaching €134 billion at the end of December (a decrease of €12 billion was reported in fourth quarter 2009, -8.0% QoQ). Net of derivatives, trading assets at December come in at a more contained level of €59 billion or 6.3% of total assets and down 30.2% YoY.Net interbank funding falls by €68 billion in 2009 (-70.5% YoY) to €29 billion. Due to both the decline in total assets and the increase in net equity, the Group’s leverage ratio1 improves in fourth quarter 2009, as well, reaching 24.4 (22.1 pro-forma the capital increase announced on September 29th, 2009), a solid result in light of the fact that the ratio calculation includes the derivatives subject to netting agreements (net of which the leverage ratio at December 2009, pro-forma the capital increase, would be 20.9).

The Core Tier 1 ratio at December 2009 reaches 7.62%: profits, improved reserves and a decrease in risk weighted assets translated into a rise of more than one percentage point (+104 bp) with respect to the prior year, excluding the effects of the capital increase. The Core Tier 1 ratio maintained its growth trend in the fourth quarter: an excellent result if the 14 bp booked entirely in the fourth quarter for the proposed UniCredit and Pekao dividend are considered. The Tier 1 ratio is 8.63% and the Total Capital ratio 12.02%. Pro-forma the capital increase announced on September 29th, 2009 and successfully completed in February 2010, the Core Tier 1 ratio reaches 8.47%, the Tier 1 ratio 9.49% and the Total Capital ratio 12.88%, a level which will make it possible to finance the future recovery.

The drop in risk weighted assets, down by €60 billion (-11.7% YoY at €452.3 billion), made possible also thanks to the strong control of market RWAs (more than halved in 2009 at €9 billion), was key to the improvement of the capital ratios. In fourth quarter 2009, while noticeable results were achieved in terms of reducing assets, the decline in risk weighted assets slowed.

At the end of December 2009 the Group’s organization consists of a staff2 of 165,062, a further reduction of 1,359 over September 2009 and of 9,457 over December 2008. The reduction in 2009 involves all the business divisions.

The Group’s network at the end of December 2009 consists of 9,799 branches (9,892 at September 2009 and 10,251 at December 2008).


1. Calculated as the ratio of total assets net good will and other intangible assets (the numerator) and net equity (including minorities) net goodwill and other intangible assets (the denominator).

2. “Full time equivalent“. In the figures reported the companies consolidated proportionately, including the KFS Group, are included at 100%.

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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