CONSOLIDATED RESULTS FOR FIRST HALF 2010: NET PROFIT, EXCLUDING GOODWILL IMPAIRMENT, AT €831 MILLION, A SLIGHT DROP YoY (-€106 MILLION) DESPITE A HIGHER TAX RATE.
NET INTEREST STABILIZING, POSITIVE TREND IN NET COMMISSIONS AND LOAN LOSS PROVISIONS.
SOLID STRUCTURE OF THE BALANCE SHEET AND REGULATORY CAPITAL (CORE TIER I AT 8.41%) CONFIRMED.
ONE4C PROJECT: MERGER APPROVED
FIRST HALF 2010:
- The Group's portion of net profit reaches €669 million, €831 million net of the €162 million in goodwill impairment, with a slight drop YoY (-€106 million) despite a higher tax rate (+5.0 p.p. to 41.2% calculated excluding goodwill impairment)
- Operating income at €13,299 million, -9.0% YoY on a constant currency and perimeter basis), with trading income down by 36.6%
- Good trend in operating costs (+0.7% YoY on a constant currency and perimeter basis) and loan loss provisions (-14.4% YoY on a constant currency and perimeter basis)
- Clear strengthening of the balance sheet structure and the capital ratios with respect to June 2009: Core Tier 1 at 8.41% and Tier 1 at 9.38%
SECOND QUARTER 2010:
- The Group's portion of net profit reaches €148 million, €310 million net of goodwill impairment
- Operating income €6,493 million, with rising quarterly trend in terms of both net commissions and net interest income; trading income down noticeably at €58 million (-€502 million QoQ) due to difficult market conditions
- Operating costs €3,939 million, a slight increase QoQ, impacted by the currency effect
- Loan loss provisions at €1,716 million, with the cost of risk down QoQ at 122 bp, -42 bp with respect to the peak of 164 bp in 2Q09
The Board of Directors of UniCredit approved the consolidated results for first half 2010 which show the Group's portion of net profit at €669 million, €148 million of which in the second quarter. This figure reflects a goodwill impairment of €162 million related to the subsidiary in Kazakhstan.
Furthermore, the Board of Directors, within One4C Project and following the approvals by the shareholders' meetings of the involved companies, has approved the merger into UniCredit S.p.A. of UniCredit Banca S.p.A., UniCredit Banca di Roma S.p.A., Banco di Sicilia S.p.A., UniCredit Corporate Banking S.p.A., UniCredit Private Banking S.p.A., UniCredit Family Financing Bank S.p.A. and UniCredit Bancassurance Management & Administration S.c.r.l. pursuant to section 2505, paragraph 2 of the Italian Civil Code. The Board of Directors has also resolved on the merger into UniCredit S.p.A. of UniCredit Partecipazioni S.r.l. It is expected that both mergers will have legal effects as at November 1st, 2010.
Going back to the Group's quarterly results, of note is the solid performance of the main income statement items (net interest and commissions are up, costs are under control and loan loss provisions are down). The positive trend of the main income statement lines is however counterbalanced by the drop in net trading, hedging and fair value income (-€502 million QoQ) attributable to the decidedly less favourable conditions of the financial markets, impacting the QoQ evolution of net profit.
Operating income reaches €13,299 million in the first six months of 2010, a drop of 9.0% YoY on a constant currency and perimeter basis, and €6,493 million in second quarter 2010, -4.6% QoQ. The evolution YoY and QoQ both reflect the trend in net trading, hedging and fair value income which was impacted by the government debt crisis, particularly in second quarter 2010.
Net interest amounts to €7,895 million in first half 2010 (-16.5% YoY on a constant currency and perimeter basis, reflecting an unquestionably less favourable interest rate environment). In the second quarter net interest reaches €3,977 million, an increase of €60 million QoQ (+1.5%), with a positive contribution in terms of volumes (particularly in CEE and CIB in Germany) and an additional value day which was partially offset by a slight squeeze in the commercial spreads.
Net commissions amount to €4,379 million in the first six months of 2010, a noticeable increase (+15.5% on a constant currency and perimeter basis) with respect to the €3,735 million reported in the same period of the prior year, confirming the good recovery of the asset management activities, as well as the satisfactory performance of the other commission items. Net commissions in second quarter 2010 amount to €2,209 million, +1.9% QoQ despite lower commissions from securities dealing, placement and other services (-11.0% QoQ due to a slowdown in market activities), which are more than compensated by the commissions from investment management services and by the other commissions (driven by the strong performance of commissions from currency trading and other services) which are up +4.1%. At June 30th 2010, the volume of the assets managed by the Group's Asset Management Division amounts to €185.5 billion, a slight increase QoQ.
Net trading, hedging and fair value income amounts to €618 million in first half 2010, down with respect to the €936 million reported in the same period in 2009. This performance is attributable primarily to the deterioration of the financial markets following the government debt crisis in second quarter 2010, which closed with the Group's net trading, hedging and fair value income at €58 million (versus €560 million in first quarter 2010).
Other net income in the first six months of 2010 comes in at €213 million (€114 million of which in the second quarter), in line with respect to the €209 million recorded in the first six months of 2009.
Operating costs amount to €7,817 million in first half 2010, an increase of 0.7% YoY on a constant currency and perimeter basis, above all due to the inclusion in the first half 2009 accounts of the release of provisions for variable compensation of €119 million (initially charged in 2008). The operating costs in second quarter 2010 amount to €3,939 million, up with respect to the €3,878 million recorded in the prior quarter (+€61 million QoQ due primarily to the currency effect and cyclical elements).
Payroll costs in the first six months of 2010 rise 1.7% YoY on a like-for-like basis, coming in at €4,653 million, due to the above mentioned release of variable compensation (€56 million in second quarter 2009). Payroll costs in second quarter 2010 drop, on a constant currency and perimeter basis, 0.1% QoQ due to staff reductions and lower provisions for variable compensation.
Other administrative expenses, net recovery of expenses, reach €2,533 million in the first six months of 2010, a slight drop with respect to the €2,539 million reported in the same period 2009 (but with a reduction of 1.4% YoY on a constant currency and perimeter basis). In second quarter 2010 the figure reaches €1,293 million, an increase with respect to the €1,240 million recorded in the prior quarter, largely attributable to the currency effect and cyclical expenses (for example, consultancies and marketing).
Amortization, depreciation and impairment losses on intangible and tangible assets amounts to €631 million in first half 2010, compared to €606 million in the same period 2009. In second quarter 2010 the figure reaches €314 million, down with respect to the €317 million recorded in the prior quarter.
The cost/income ratio reaches 58.8% in first half 2010 (60.7% in the second quarter), up with respect to first half 2009 (53.4%).
Operating profit in the first six months of 2010 amounts to €5,482 million, €2,554 of which posted in the second quarter. The result reflects the €502 million drop QoQ in trading income caused by different market conditions. Excluding trading income, the operating profit in second quarter 2010 rises 5.5% with respect to the prior quarter.
Goodwill impairment amounts to €162 million. The impairment test conducted in June confirmed that, as a whole, the goodwill recognised for the different business units was sustainable with the exception of Kazakhstan, where the persistent economic crisis and the subsequent revision of the business plans deemed it necessary to make the above mentioned adjustment in value.
The provisions for risks and charges increase YoY to €262 million in first half 2010, €106 million of which posted in the second quarter (down with respect to the €156 million recorded in the prior quarter).
Loan loss provisions and provisions for guarantees and commitments in first half 2010 amounts to €3,507 million (a reduction from more than €4 billion relative to the same period in 2009), equal to a cost of risk of 125 basis points annualized. In the second quarter, loan loss provisions show a decrease for the fourth consecutive quarter (at €1,716 million from €1,791 million in first quarter 2010).
Gross impaired loans at the end of June 2010 amount to €63.7 billion, an increase of 5.9% QoQ (+5.4% QoQ at constant exchange rates). Gross NPLs rise 8.1% QoQ, while the growth of the other problem loan categories slows, increasing +3.1% QoQ.
The coverage ratio of total gross impaired loans at June 2010 is 45.2%, which reflects a 59.8% coverage of the NPLs and a 25.1% coverage of the other problem loans.
Integration costs amount to €11 million in the first six months of 2010 (€6 million of which incurred in the second quarter), down with respect to the €309 million recorded in first half 2009 (which included charges related to staff reductions).
Net income from investments totals €107 million in first half 2010, an increase with respect to the -€166 million reported in the same period of the prior year. Net income from investments in second quarter 2010 amounts to €39 million versus €68 million in first quarter 2010.
Income tax amounts to €745 million in the first six months of 2010 (€697 million in the same period of the prior year) with a tax rate of 41.2% excluding goodwill impairment, up 5.0 percentage points YoY. The tax rate in second quarter 2010 is also relatively high with respect to the past (at 44.6% calculated excluding goodwill impairment) with tax in the period reaching €342 million due to IRAP (regional business tax) charges in Italy.
Minorities total €119 million in first half 2010 compared to €166 million in the same period 2009. In second quarter 2010 minorities total €56 million (€63 million in the prior quarter).
The impact of the Purchase Price Allocation in the first six months of 2010 is lower compared to the -€129 million recorded in the first six months of 2009, coming in at -€115 million, -€58 million of which in the second quarter.
In first half 2010 the Group's portion of net profit amounts to €669 million compared to €937 million in the same period of the prior year (-€268 million YoY), which had benefited from a greater contribution of trading income to revenues (of €318 million) and which was not impacted by the non-recurring charge of €162 million related to goodwill impairment. The slowdown in the contribution of trading income to revenues (-€502 million QoQ), as well as the impact of the impairment losses is even more evident in the quarter with net profit dropping from €372 million to €148 million.
In second quarter 2010 the Group's customer loans reach €559 billion (€564 billion at March 2010) with a reduction that is attributable to the Corporate Centre and signs of recovery in the commercial business (above all in a few CEE countries and in the CIB division in Germany). Direct funding (1) at June 2010 comes in at €577 billion (versus €593 billion at March 2010), with a solid dynamic in terms of deposits and securities placed by the Group's commercial networks and a drop in the other securities. This decline involved primarily short term instruments expiring within one year (in line with the sector trend) and was temporarily offset in the interbank market through a drop in assets and an increase in repos with other banks. The loan-direct funding ratio at June 2010 comes in at 96.8%, testimony to the balanced funding structure. Net interbank funding at June 2010 amounts to €35 billion (€21 billion at March 2010).
The trading assets amount to €152 billion at June 2010, an increase QoQ with respect to the €138 billion recorded at March 2010 due to an increase in derivatives (+€14 billion QoQ due to changes in fair value in more volatile markets). The trading assets show a further decline net of derivatives (-1.9% QoQ to €56 billion at the end of June 2010).
Total assets at June 2010 amount to €955 billion, largely unchanged with respect to March 2010, with a balance sheet structure that maintained its high quality even in a difficult funding environment. The Group's leverage ratio (2)at June 2010 reaches 22.3, an increase with respect to the 21.6 recorded at March 2010, also explained by the increase in the derivatives' market value and the payment of dividends for the prior year (which took place, as usual, in the second quarter).
The Core Tier 1 ratio at the end of June 2010 reaches 8.41%, a drop QoQ of 4 basis points due primarily to an increase in risk weighted assets and to dividends accrual, which more than offset the positive contribution of the profit posted in the period. In second quarter 2010 the risk weighted assets rise 0.7% QoQ to €459.0 billion due to the currency effect, but also to resumed growth in a few areas (CEE, above all Turkey, CIB in Germany). The Tier 1 ratio comes in at 9.38% and the Total Capital Ratio at 12.74%.
At the end of June 2010 the Group's structure consists of a staff (3) of 161,857, a further reduction of 6,150 relative to June 2009 and 521 relative to March 2010. The decrease in the second quarter is attributable to different areas, with the largest drop coming from Retail, CIB and corporate structures (Corporate Centre and GBS).
The Group's network at June 2010 consists of 9,578 branches (9,974 at June 2009 and 9,637 at March 2010).
1) Deposits and securities
2) Calculated as the ratio of total assets net of goodwill and other intangible assets (the numerator) and net equity (including minorities) less goodwill and other intangible assets (the denominator).
3) "Full time equivalent ": in the figures reported the companies consolidated proportionately, including the KFS Group, are included at 100%.
Milan, August 3rd, 2010
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Attached are the Group's key figures, the consolidated balance sheet and income statement, the quarterly evolution of the consolidated income statement and balance sheet, the second quarter 2010/2009 income statement comparison, and the main divisional results. Please note that a review of these documents is underway by independent auditors who have not yet issued their report.