CONSOLIDATED 2008 RESULTS: NET PROFIT OF €4 BILLION, PRO-FORMA CORE TIER I RATIO AT 6.5%
• Group's portion of net profit at €4,012 million
• Core Tier 1 ratio at 6.5% pro-forma after the capital increase of €3 billion
• Operating profit €10,174 million
• Solid performance of the commercial banks with operating profit up by 9.3% YoY
• Operating costs unchanged YoY (-0.05%) on a like-for-like foreign exchange and perimeter basis
• Cost of risk 62 bp, an increase compared to the 44 bp in 2007, gross NPLs up +3.6% YoY
• Proposal to distribute profits by assigning to shareholders newly issued UniCredit shares ("scrip dividend")
• In line with the Group's governance rules, the CEO, the Deputy CEOs and the Management Committee members will not be awarded any performance bonus for 2008
FOURTH QUARTER 2008:
• Group's portion of net profit at €505 million (compared to €1,172 million in 4Q07), despite the financial markets turbulence in 4Q08
• Operating income €6,077 million, down from the €7,113 million recorded in 2007, but basically unchanged (-1.3% YoY on a like-for-like foreign exchange and perimeter basis) excluding the net trading income, despite the difficult macroeconomic scenario
• Operating costs €4,174 million, +0.4% YoY on a like-for-like foreign exchange and perimeter basis
• Operating profit €1,903 million, with a solid trend in commercial banking (+4.2% YoY)
The Board of Directors of UniCredit approved the consolidated results for 2008 which show a net profit of €4,012 mn, in line with guidance. Net profit for the fourth quarter 2008 amounted to €505 mn despite the significant turbulence of the financial markets.
Operating profit reached €10,174 mn in 2008 (€1,903 mn in Q4 08), compared to €13,346 mn in 2007. When compared to 2007, the results reflect a drop in revenues (where the net trading income was impacted by the severe financial crisis), but also significant cost control (the operating costs fell 0.05% YoY on a like-for-like foreign exchange and perimeter basis).
Commercial banking had a solid performance, operating profit rose by 9.3% YoY to €12.0 billion (bn) in 2008, and reported a significant operating profit of approximately €3 bn despite a difficult Q4 08. This noteworthy result was reached thanks to a positive trend which continued in the CEE region (+28.5% YoY in 2008, +11.6% on a like-for-like foreign exchange and perimeter basis), the growth in Corporate (+6.8% YoY 2008) and in Retail (+8.6% normalized YoY). The businesses which are most sensitive to financial market trends, rather, dropped due to the exceptional market turbulence. More in detail, the Markets & Investment Banking (MIB) Division reported an operating loss of €1,287 mn in 2008 due to the exceptional level of volatility, the anomalous correlations and the widening of spreads, particularly in Q4 08, when MIB recorded an operating loss of €919 million.
In terms of operating income (€26,866 mn in 2008), the drop versus €29,502 mn reported in 2007 is almost entirely attributable to Group's net trading, hedging and fair value income (which reported a negative swing of €3.3 bn, from +€1,280 mn in 2007 to -€1,980 mn in 2008) due to the financial crisis. Net of these effects, operating income rose 2.2% YoY in 2008 and fell slightly by 1.3% in the difficult Q408.
Net interest amounted to €18,373 mn in 2008: the growth rate (+13.4% YoY) is attributable, on the one hand, to the positive trend in interest rates (in particular in the first half of the year) and, on the other hand, to the increase in lending volumes (net customer loans at December 31st, 2008 rose by 6.5% YoY to approximately €612 bn). All the divisions contributed to the growth in net interest, namely Corporate (+11.2% YoY), the CEE region (+30.7% YoY, 13.9% on a like-for-like foreign exchange and perimeter basis) and MIB (+58.7% YoY, also thanks to the positive impact of the reclassification of assets subsequent to the amendment to IAS 39). A solid trend in net interest was also reported in Q408 which rose approximately 10.3% YoY to €4,823 mn.
Net fees and commission amounted to €9,093 mn in the year (€2,090 mn in the fourth quarter) compared to €10,694 in 2007. The decline in the year is primarily attributable to a reduction in fees and commissions from asset management, custody and administration (equal to approximately €3.9 bn, -27.6% YoY) which reflects the sector-wide drop in the volume of assets under management, due both to the negative performance of the financial markets, and the withdrawal of assets from the system as a whole. At the end of the year the volumes managed by the Group's Asset Management Division amounted to €167 bn.
Net trading, hedging and fair value income was negative in 2008, primarily due to the impact of the extreme market conditions on the investments and trading positions held by the MIB Division. The market turbulence intensified significantly following Chapter 11 proceedings filed by Lehman mid-September, generating negative net trading, hedging and fair value income of €1,258 mn in Q408.
Other net income totalled €368 compared to €409 mn in 2007.
Operating costs amounted to €16,692 mn, a slight drop on a like-for-like foreign exchange and perimeter basis over 2007 thanks to the Group-wide efficiencies, in particular, in Western Europe which compensated for the development initiatives in CEE (gradually reduced over the year and suspended in 2009). In Q4 08 operating costs amounted to €4,174 mn, basically unchanged when compared to Q4 07 (+0.4% on a like-for-like foreign exchange and perimeter basis).
Payroll expenses dropped by 1.7% on a like-for-like basis to €9,918 mn due to the optimisation of resources and a reduction in the variable compensation linked to business results; these phenomena offset the increase in costs in Eastern Europe connected to the network expansion initiatives. The drop in payroll expenses accelerated in Q4 08 (-2.2% YoY on a like-for-like foreign exchange and perimeter basis, or €2,385 mn), driven by the reduction in FTEs both in Western Europe and in CEE.
Other administrative expenses, net recovery of expenses, totaled €5,462 mn in 2008, a slight increase of +2.7% YoY on a like-for-like basis, primarily attributable to CEE (following the opening of new branches, suspended as of 2009). The figure is basically unchanged in Western Europe YoY on a like-for-like basis.
Amortization, depreciation and impairment losses on intangible and tangible assets grew by 1.8% YoY on a like-for-like basis in 2008, primarily due to the growth in CEE.
The cost/income ratio came in at 62% in 2008 (55% in 2007) which reflects the impact of the crisis on trading income.
In Q4 08 there was goodwill impairment of €750mn (€417mn of which on ATF in Kazakhstan and €333mn on Ukrsotsbank in the Ukraine).
Provisions for risks and charges dropped by more than half from €753mn in 2007 to €344mn.
Net write-downs of loans and provisions for guarantees and commitments amounted to €3.7bn compared to €2.5bn in 2007. This result reflects the difficult credit market, with MIB recording negative provisions after adjustments in 2007, along with the new consolidations in CEE and the gradual deterioration in the commercial banking divisions. In Q408 net write-downs of loans and provisions for guarantees and commitments reached €1.3bn, with signs of deterioration in the credit market, particularly in Italy.
Gross impaired loans at the end of 2008 reached €41.8bn (+12,3% YoY), with the largest increases coming from watchlist loans in fourth quarter 2008. There was a smaller increase in gross NPLs of 3.6% YoY. Net NPLs amounted to €10.5bn at the end of December 2008 (approximately +€1.4bn YoY), which reflects both the increase in gross NPLs and the drop in coverage (primarily due to adjustments made to provisions in work-out portfolios in Germany (1)).
The coverage ratio of total gross impaired loans at December 2008 is 52.5%, compared to 57.2% at year-end 2007 also due to the drop in the impact of NPLs on total impaired loans.
Integration costs amounted to €140mn and are largely linked to Retail in Italy (Capitalia integration) and the Poland's Market's Division (Pekao - BPH integration).
Net investment income totaled approximately €218mn, significantly lower than the exceptional level of €1.7bn in 2007. In fourth quarter 2008 net investment income reached €213mn. The losses (Sabadell €182mn, LSE €93mn, other equity investments €107mn) more than offset the income from investments (Real estate fund €360mn, Capitalia €304mn, Atlantia €156mn).
Income tax for the period amounted to €627mn in 2008, markedly below the €3,221mn reported at December 2007, with a tax rate of 11% which reflects a tax benefit of €1,014mn following the change in Italian regulations regarding the tax treatment of goodwill. In the fourth quarter 2008 taxes had a positive impact of €849mn as the change referred to above was booked in the last quarter of the year.
Minorities at the end of December 2008 came in at €518mn (compared to €718mn in 2007).
Capitalia's Purchase Price Allocation weighed some -€301mn in 2008, an impact which exceeded the -€65mn recorded in 2007, due to the fact that Capitalia was consolidated for one quarter only in 2007.
The Group's portion of net profit totalled, therefore, €4,012 mn versus €6,506 mn in 2007. In the fourth quarter the Group's portion reached €505mn, despite the financial crisis.
Total assets amounted to €1,046bn (€1,022bn at December 2007) with a drop versus September 2008 (-0.7%) despite the consistent mark-to-market of the hedging instruments (compensated by a similar trend in terms of liabilities) due to market volatility in fourth quarter 2008. Total assets net hedging instruments showed a significant drop of 6% in fourth quarter 2008.
Pro-forma for approximately +60 bp for the capital increase, Core Tier 1 ratio rose from the 5.8% at December 2007 to the 6.5% recorded at December 2008; Tier 1 ratio came in at 7.3%, above the prior year (6.5%). The Total Capital Ratio reached 11.4% compared to 10.1% at the end of 2007 (2) .
At the end of December 2008 the Group's organization consisted of a staff (3) of 174,519 employees, an increase when compared to the 169,816 headcounts at December 2007. This trend is due to the changes in the perimeter of consolidation (primarily the consolidation of Uksotsbank, 9,670 heads at January 2008, which more than offset the drop due to the sale of Capitalia branches, 945, and the sale of BPH, 3,220). Net the above mentioned changes the total staff perimeter dropped by approximately 800 headcounts in 2008: the reduction in Italy, Germany and Poland offset the growth in CEE (due to the opening of branches, suspended in 2009). In the fourth quarter, the Group's staff decreased by 2,873 headcounts, with a drop in both Western Europe and CEE. In the first two months of 2009, the trend continues resulting in the reduction of circa 3,300 FTE.
The Group's network at the end of 2008 consisted of 10,251 branches (9,714 at December 2007).
The Board of Directors also approved the draft financial statements of UniCredito Italiano SpA, which show net income of €3,281mn (€1,858 mn in 2007).
In line with the Group governance model - which provides for a direct link between corporate results and Senior Management variable compensation - no 2008 performance-related bonuses are foreseen for Group CEO, Deputy CEOs and all Management Committee Members.
The Board of Directors has proposed to submit to the next Shareholders General Meeting the assignment of profits to the shareholders, which would be realized by assigning to shareholders newly issued UniCredit shares ("scrip dividend") deriving from a free capital increase to be executed by allocation of available reserves.
In particular, it will be proposed to the shareholders the attribution of 13 new ordinary shares for every 36 already owned ordinary shares and 1 new saving share for every 5 already owned saving shares, each with a nominal value of € 0,50. It is envisaged that the assignment of the newly issued shares to shareholders will be effective on 21st May 2009.
Furthermore, the Board of Directors has proposed the assignment to saving shareholders of a € 0,025 cash dividend per share; such dividend, in the amount approved by the Shareholders General Meeting, will be payable on 21st May 2009, with coupon detachment on 18th May 2009.
1) Primarily the RER and SCP portfolios
2) 2007 figures under Basel 1
3) "Full time equivalent", calculated according to a new methodology which does not include unpaid leaves. In the figures reported the KFS Group, proportionately consolidated, is included at 100%
Attached are the Group's key figures, the consolidated balance sheet and income statement, the quarterly progression of the consolidated income statements, the comparison of the fourth quarter financial statements 2007-2008 and the major divisional results. The documentation has yet to be certified by the Independent Auditors.
Milan, March 18th, 2009
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