UniCredit cuts revenue target as it struggles to spur growth

The Unicredit logo on the Unicredit tower is pictured in Milan. (AFP pic)

MILAN: UniCredit SpA cut its full-year revenue target as sluggish European economies and the sale of an online banking unit weighed on the Italian lender.

Second-quarter revenue declined by 4.6%, hit by slowdowns for lending, trading and fees, while profit missed analyst estimates.

The bank lowered its 2019 sales goal to €18.7 billion (US$21 billion) from €19.8 billion previously announced.

The past target is €19 billion if the sale of its Fineco unit is included. UniCredit bank confirmed its full-year adjusted profit target.

Lenders are settling in for a long period of low and negative interest rates as central banks try to cushion the blow of a global economic slowdown.

Chief Executive Officer Jean Pierre Mustier has cut about 14,000 jobs since taking over about three years ago and may eliminate as many as 10,000 more under a new business plan, according to people with knowledge of the matter.

Profit missed estimates “mainly due to lower commissions, higher loan impairments and a capital loss” from a disposal, Luigi Tramontana, an analyst at Banca Akros SpA said in a note.

“We expect a negative market reaction to these lower-than-expected results.”

Mustier has focused on cutting costs and cleaning up the balance sheet to boost profit amid weak earnings from lending.

The CEO said in an interview with Italian newspaper MF last month that any strategy based on revenue growth isn’t credible in today’s economic and interest rate environment.

“With rates expected to be lower for much longer, we decided to adjust our 2019 revenue guidance,” Mustier said in the statement.

“We have made good progress on the four financial measures we announced last quarter to prepare for the new business strategy.”

UniCredit has gained about 5% in Milan trading this year, compared with a 7% decline by the STOXX 600 banks price index.

Exceeded goals

The bank confirmed full-year targets such as costs and adjusted profit. UniCredit has exceeded a number of its goals set forth in Mustier’s initial three-year plan, including job cuts, branch closures and the reduction of bad debt. It plans to unveil a new strategy in December.

For the new plan, the lender is considering options to reduce its cost of funding, including the creation of a separate holding company in Germany for its foreign businesses, people with knowledge of the matter said earlier this year.

The bank is seeking advisers to review its options on its corporate structure, the people said, asking to not be identified because the process is private.

Operating expenses fell 4.4% to €2.45 billion in the three months through June.

Operating income, which excluding gains from the sale of a stake in its Fineco online banking business, was little changed at about 1 billion euros. Net income including the stake sale rose 81% to €1.85 billion.

The bank’s key common equity Tier 1 ratio fell to 12.08% as of June 30 from 12.25% at the end of March on regulatory headwinds that more than offset gains from Fineco sale.

The bank seeks to boost the ratio to 2.5 percentage points above what regulators require by the end of the year.