UniCredit ready for economic shocks after bumper quarter

UniCredit raised its 2022 outlook on Wednesday after a surprisingly strong second quarter in which it cut exposure to Russia and moved ahead with a proposed share buyback it had put on hold.

CEO Andrea Orcel told reporters the bank was better placed than some rivals to withstand the economic damage from the Ukraine war, the impact of which was noticeable in the current quarter as people and companies have become more cautious in their financial decision-making.

"At the moment performance is being affected by the high level of uncertainty and concern on what may arrive," Orcel said, adding the extent of the economic hit was still unclear.

"We need to see how deep the deceleration - which we still think it's the case - is. Or are we looking at a recession?."

Even in a recession, UniCredit is confident of delivering the "the majority" of a 2021-2024 capital distribution target of more than 16 billion euros, he said.

"We're very confident on ... how we can manage and go through this crisis," the former UBS investment banking chief added. "I don't think everyone is in the same position and so it may be that (M&A) opportunities open at the right time and if they do we'll be ready."

UniCredit sought supervisory approval for a 1 billion euro share buyback it had frozen pending more clarity on Russia, after completing a first 1.6 billion euro tranche in mid-July.

Italy's second biggest bank, whose shares shot up 7% on Wednesday, forecast a full-year profit, excluding Russia, of around 4 billion euros from a previous indication of more than 3.3 billion, as rising interest rates support lending income.

A bigger-than-expected rise in interest income drove second quarter revenues up 9% year-on-year, despite a quarterly drop in fees amid tough markets.

Net profit for April-June came in at 2 billion euros ($2 billion), double the average analyst forecast and the previous year's figure, helped by the release of loan-loss provisions.

Core capital strengthened to 15.73% of assets from 14% at the end of March, leading analysts to expect a regulatory green light for the buyback.

"This is a strong set of figures on all fronts," broker Autonomous said.

UniCredit faces "from a stronger position than expected" Italy's political risks ahead of general elections in September and the energy crisis threat to the country's manufacturing sector, the broker said.

RUSSIA

UniCredit, one of Europe's banks more exposed to Russia where it runs a top-15 lender, cut 2.7 billion euros in Russian assets in the quarter, partly through early repayments or cancelling letters of credit as business dried up.

Orcel said a further reduction in the bank's Russian exposure had taken place since the end of June.

UniCredit has failed to extricate itself early from Russia and has criticised as "morally wrong" a sale for a token price, such as the one agreed by rival Societe Generale. It continues to explore potential "fair" transactions with buyers from non-hostile countries to exit Russia.

Orcel said Moscow's threats to block sales of local subsidiaries by foreign banks had not altered the picture because the central bank reserved the right to vet each transaction on a case by case basis.

($1 = 0.9854 euros)

(Editing by Giulia Segreti, Jason Neely, Jacqueline Wong and Jane Merriman)