MILAN - Italy's second-biggest bank UniCredit posted better than expected first-quarter profits on Thursday, joining European rivals in painting a brighter picture for the sector thanks to booming markets and lower loan losses.
Revenue at UniCredit, which last month appointed former UBS banker Andrea Orcel as it new chief executive, unexpectedly rose between January and March, driven by trading gains and fees, which more than offset ongoing weakness in the lending business.
The bank trimmed its outlook for 2021 revenue but it broadly confirmed its profit goal for the year thanks to lower than expected loan losses and said Orcel would unveil his strategy in the second half.
Shares in UniCredit rose 4% in early trade, outperforming a 0.5% gain in the European sector, which has rallied 25% so far this year as lenders weathered the hit from the coronavirus pandemic better than analysts feared a year ago.
UniCredit said net profit in the three months through March was 887 million euros ($1.1 billion), more than twice a company-provided average analyst estimate of 396 million euros.
The figure is a far cry from the 2.7 billion euro loss UniCredit posted last year, hit by costs to lay off staff and to cut its stake in Turkish lender Yapi Kredi.
Other European banks have also been able to rely on bumper trading volumes and lower credit risk provisions in early 2021 to compensate for low margins on lending.
Societe Generale and ING topped expectations on Thursday, as did Italy's largest bank Intesa Sanpaolo on Wednesday.
Negative interest rates have eroded returns from lending, but Orcel warned that the challenge for UniCredit was compounded by the strongly risk-averse lending policy of previous boss Jean Pierre Mustier.
Orcel warned that net interest income would continue to struggle and the bank might not benefit from the same offsetting factors later in the year.
"As we look to the future, it will take time to re-energise and strengthen the business, moving from a period of active retrenchment to one defined by disciplined profitable growth and healthy organic capital generation," he said in a statement.
Mustier cleaned up UniCredit's balance sheet and rebuilt its capital reserves. But he failed to find sustained revenue drivers after shedding profitable businesses or clinch a proposed cross-border merger.
In another apparent break with Mustier's very cautious stance on credit risks, UniCredit said it had only set aside 167 million euros against loan losses, helped by a small release of past provisions. That was a third of what analysts had expected.
The bank also improved its outlook for expected loan losses over the rest of the year after booking 2.2 billion euros in provisions last year in anticipation of future losses driven by the coronavirus pandemic.
UniCredit said it expected its 2021 full-year underlying net profit, which strips out one-off items, to be "broadly in line" with its previous forecast of more than 3 billion euros. It expected 2021 revenue to be line with a consensus estimate of 17.2 billion euros, down from 17.7 billion euros previously.
($1 = 0.8331 euros)
(Reporting by Valentina Za; Editing by Maria Pia Quaglia, Richard Pullin and David Clarke) ((firstname.lastname@example.org; +39 02 6612 9526;))