THE UNICREDIT GROUP IN 2010: NET PROFIT OF €1,323 MILLION (-22.2% YoY). PROFIT BEFORE TAX REACHES €2.5 BILLION DESPITE GOODWILL IMPAIRMENT OF €362 MILLION.
2010 SHOWS A GOOD TREND YoY IN NET COMMISSIONS, OPERATING COSTS AND LOAN LOSS PROVISIONS.
BOTH NET INTEREST AND NET COMMISSIONS UP IN THE FOURTH QUARTER, CONFIRMING THE RECOVERY.
TRADING INCOME DOWN YoY DUE TO DIFFICULT FINANCIAL MARKETS, BUT STILL POSITIVE IN EVERY QUARTER.
SOLID STRUCTURE OF THE BALANCE SHEET AND OF THE REGULATORY CAPITAL CONFIRMED (CORE TIER I AT 8.58%).
FULL YEAR 2010:
• Group's portion of net profit reaches €1,323 million (€1,702 million in 2009) with a 2010 featuring several non-operating, non-recurring items (goodwill impairment, integration costs, recognition of deferred tax)
• Operating income at €26,347 million, -5.9% YoY on a constant currency and perimeter basis, with trading income down by 42.9% YoY on a constant currency and perimeter basis
• Good trend in net commissions (+8.4% YoY on a constant currency and perimeter basis), operating costs (-0.1% YoY on a constant currency and perimeter basis) and loan loss provisions (-18.2% YoY on a constant currency and perimeter basis)
• The solid structure of the balance sheet, the good level of liquidity (the structural liquidity ratio reaches 0.98) and the strength of the regulatory capital (Core Tier 1 (1) at 8.58% and Tier 1 at 9.46%) are all confirmed
• Proposed cash dividend of €0.03 per ordinary share
FOURTH QUARTER 2010:
• Group's portion of net profit reaches €321 million, +9.0% QoQ net the -€43 million of non-operating, non-recurring items
• Operating income at €6,554 million, an increase on the €6,494 million recorded in 3Q10, due primarily to the good performance of net interest (+2.5% QoQ) and net commissions (+8.1% QoQ)
• Operating costs total €3,755 million, a decline of 4.0% QoQ
• Loan loss provisions of €1,751 million, with the cost of risk at 126 bp
The Board of Directors of UniCredit approved the consolidated results for 2010 which show the Group's portion of net profit at €1,323 million (compared to €1,702 million in 2009, which had benefited from a more favourable interest rate environment and a larger contribution of trading income to operating income).
UniCredit's Board of Directors also resolved to submit to the next ordinary Shareholders' Meeting the proposal to pay a dividend of €3 cents per ordinary share and €4.5 cents per saving share.
The Unicredit Group's net profit in fourth quarter 2010 amounts to €321 million, a slight decrease with respect to the €334 million recorded in third quarter 2010. The Group's quarterly financial results stand out for the stability of the operating income (+0.9% QoQ despite the noticeable drop in trading income, thanks primarily to the strong performance of net interest and net commissions), the cost control (-4.0% QoQ) and an increase in loan loss provisions (albeit limited, with the cost of risk rising +9 bp QoQ to 126 basis points). Also of note in the quarter is a series of non-operating, non-recurring items involving goodwill impairment, integration costs for One4C, a single item, particularly high, posted to risks and charges, and positive deferred tax. The impact of the above mentioned non-recurring items is, however, limited (-€43 million) as positive and negative elements offset each other.
Operating income reaches €26,347 million in 2010, a drop of 5.9% YoY on a constant currency and perimeter basis, and €6,554 million in fourth quarter 2010, +0.9% QoQ despite the marked decline in net trading, hedging and fair value income due to the difficult financial markets. Both net interest and net commissions rise noticeably, testimony to the dynamism of the commercial banking activities.
Net interest amounts to €15,993 million in 2010 (-9.3% YoY on a constant currency and perimeter basis), due to a decidedly less favourable interest rate environment which did, however, gradually improve towards the end of 2010. Testimony to this trend is net interest which rises in the fourth quarter with respect to the €3,964 million reported in the third quarter to €4,062 million, due to an improvement in the deposit spreads for Retail and Private Banking, a higher contribution from trading related interests (and €29 million in positive, non-recurring items), which more than offset the Corporate Centre's increased cost of funding.
Net commissions amount to €8.455 million in 2010, a noticeable increase (+8.4% on a constant currency and perimeter basis) with respect to the €7,655 recorded in the prior year, with good recovery in asset management, but also in other commission items. Net commissions in fourth quarter 2010 amount to €2,155 million, +8.1% with respect to the €1,993 million reported in the prior quarter (impacted by seasonality) due, above all, to the increase in commissions from investment services, but also to the good performance of almost all the other commission items. At December 31st, 2010, the volume of the assets managed by the Group's Asset Management Division amounts to €186.7 billion.
Net trading, hedging and fair value income totals €1,053 million in 2010, a strong decline with respect to the €1,803 million recorded in 2009. This trend is explained by the deterioration in the financial markets following the sovereign debt crisis, which in 2010 affected, above all, the second and fourth quarters. In fourth quarter 2010 net trading, hedging and fair value income reaches €53 million, versus €381 million in third quarter 2010.
Other net income in 2010 rises from the €373 million posted in 2009 to €438 million (€139 million of which in the fourth quarter).
Operating costs amount to €15,483 million in 2010, a drop of 0.1% YoY on a constant currency and perimeter basis. With regard to the quarterly trend, in fourth quarter 2010 operating costs amount to €3,755 million, -4.0% QoQ (-0.7% QoQ on a constant currency and perimeter basis and excluding the non-recurring items recognized in the third and fourth quarters of 2010).
Payroll costs in 2010 rise by 0.3% YoY on a constant currency and perimeter basis to €9,205 million. There was a decline QoQ in the fourth quarter, of 6.8%, attributable, in part, to non-recurring items (which show €64 million QoQ positive swing). Net of these items, and on a constant currency and perimeter basis, payroll costs show a drop of 3.9% QoQ attributable, in part, to the variable component.
Other administrative expenses, net of recovery of expenses, reach €4,995 million in 2010, a drop of 0.3% on a constant currency and perimeter basis with respect to 2009. In fourth quarter 2010 the figure reaches €1,243 million, +1.9% QoQ, with €56 million QoQ swing linked to the capitalization of IT costs at the end of the year. Excluding this item and on a like-for-like basis other administrative expenses rise 6.7% due primarily to marketing costs, the seasonal increase in IT costs and legal fees.
Amortization, depreciation and impairment losses on intangible and tangible assets in 2010 amount to €1,283 million, unchanged with respect to the €1,281 million reported in 2009 (but down 1.6% YoY on a constant currency and perimeter basis). The figure reaches €316 million in fourth quarter 2010, a drop when compared to the €336 million recorded in the prior quarter.
The cost/income ratio in 2010 rises with respect to the 55.6% reported in 2009 to 58.8% (57.3% in the fourth quarter, down versus the 60.2% posted in the third quarter).
Operating profit in 2010 amounts to €10,864 million, €2,799 million of which in the fourth quarter, an increase of 8.4% QoQ.
In 2010 the Group recognized goodwill impairment of €362 million, almost entirely attributable to Kazakhstan, of which €199 million in fourth quarter 2010 and €162 million in second quarter 2010.
The provisions for risks and charges reach €766 million in 2010 (versus €609 million in 2009), €472 million of which accrued in fourth quarter 2010 (€32 million in the third quarter): this figure includes €425 million relating to a single underwriting in Germany and the release of €118 million in provisions linked to contractual obligations in a real estate fund unwound during the quarter (with the recognition, at the same time, of -€116 million in net income from investments).
Loan loss provisions and provisions for guarantees and commitments in 2010 amount to €6,892 million, equal to a cost of risk of 123 bp, a drop of 18.2% YoY on a constant currency and perimeter basis due to the gradual improvement of asset quality in many of the countries where the UniCredit Group is present. In fourth quarter 2010 the figure amounts to €1,751 million (versus €1,634 million in third quarter 2010), equal to a cost of risk of 126 bp annualized.
Gross impaired loans at the end of December 2010 amount to €67.4 billion, +3.4% QoQ due to the trend in Italy, with the CEE area stable and Germany down QoQ. Gross NPLs rise 2.5% QoQ, while the other gross impaired loans rise by 4.5% QoQ.
The coverage ratio of total gross impaired loans at December 2010 comes in at 44.4% versus 45.2% at September 2010 (which reflects a 57.8% coverage of the NPLs and a 26.3% coverage of the other impaired loans).
Integration costs amount to €282 million in 2010, an increase compared to the €258 million reported in 2009. The integration costs for 2010 were recorded primarily in the last quarter (€254 million) due to the agreements to reduce personnel linked to the One4C project (Insieme per i Clienti).
Net income from investments totals -€47 million in 2010, down with respect to the +€232 million recorded in the prior year. Net income from investments in fourth quarter 2010 is a negative €157 million (versus +€2 million in third quarter 2010) due, above all, to the €116 million related to the release of provisions for risks and charges described above.
Income tax totals €640 million in 2010, dropping from the €1,009 million posted in the prior year due, above all, to the recognition in fourth quarter 2010 of a sizeable amount of deferred tax assets (€629 million mainly from the merger into the parent company of the main Italian subsidiaries, as part of the One4C project (2), and from deferred tax relating to past losses recognized in the German subsidiary).
Minorities in 2010 total €321 million, versus €332 million in 2009. In fourth quarter 2010 minorities amount to €80 million, a drop with respect to the €122 million reported in the prior quarter.
The impact of the Purchase Price Allocation reaches -€232 million in 2010 versus -€257 million in 2009. The fourth quarter comes in at -€59 million.
The Group's portion of net profit in 2010 reaches €1,323 million versus €1,702 million in the same period of the prior year (-€379 million YoY), which benefited from a more favourable interest rate environment and a larger contribution of trading income to operating income. The figure in fourth quarter 2010 comes in at €321 million, a slight drop with respect to the €334 million recorded in the third quarter, despite the strong decline in trading income and the €43 million net negative impact of the non-operating, non-recurring items.
In fourth quarter 2010 the Group's customer loans reach €556 billion, a drop QoQ with respect to the €559 billion recorded in the prior quarter, attributable entirely to the Corporate Centre while the commercial divisions, in particular CIB and CEE, show an increase. Direct funding (3) at December 2010 comes in at €583 billion (versus €589 billion at September 2010), with a solid dynamic in deposits, +2.1% QoQ, while securities fall, due primarily to a drop in the issue of commercial paper, substituted by interbank funding. Net interbank funding at December 2010 amounts to €42 billion, an increase when compared to the €28 billion posted at September 2010. The loan/direct funding ratio at December 2010 comes in at 95.3%, confirming the balanced funding structure.
Trading assets amount to €123 billion at December 2010, lower than the €157 billion recorded at September 2010, due primarily to a strong decline in derivatives (-€32.3 billion QoQ due, above all, to the impact of interest rates on fair value valuations), while trading assets net of derivatives continue to fall (-€2.2 billion QoQ to €48 billion at the end of December 2010).
Total assets at December 2010 amount to €929 billion, a drop of 4.1% QoQ (attributable almost entirely to derivatives, net of which the drop comes in at 0.8%). The high quality of the structure of the balance sheet was maintained in the last quarter of 2010, even in a difficult funding environment.
The Group's leverage ratio (4) at December 2010 reaches 21.5, a drop versus the 22.3 reported in the prior quarter.
The Core Tier 1 ratio at the end of December 2010 reaches 8.58%, with a decrease QoQ of 3 basis points, due primarily to an increase in risk weighted assets. In fourth quarter 2010 risk weighted assets rise 0.3% QoQ to €454.8 billion, attributable to an increase in the risk weighted assets from operational risk. Both the risk weighted assets from market and credit risk, instead, continue to decline, dropping, respectively, by €0.3 billion QoQ to €9.0 billion and by €7.7 billion to €395.5 billion. The Tier 1 ratio is 9.46% and Total Capital Ratio is 12.68%. The guidance regarding the limited impact of the Basel 3 transition is confirmed, with an estimated impact of 131 basis points, assuming no phase in (therefore, based on the rules at December 2018) and 76 basis points assuming phase in (therefore, the rules in force at January 1st, 2013).
At the end of December 2010 the Group's structure consists of a staff (5) of 162,009, a drop of 3,053 with respect to December 2009 and an increase of 840 with respect to September 2010. The rise in fourth quarter 2010 is explained by the consolidation of some service companies, already part of the group at December 31st, 2010, which resulted in an increase in the staff of 1,224. Net of this effect staff fell by 384 between September and December.
The Group's network at the end of December 2010 consists of 9,617 branches (9,799 at December 2009 and 9,585 at September 2010).
1) Including shares subject to usufruct with Mediobanca and that represent the underlying to the CASHES
2) The merger allowed to book, also for IRAP (the Italian regional business tax) purposes the benefits of the regulation on the tax treatment of goodwill, approved in Italy in 2008
3) Deposits and securities
4) Calculated as the ratio of total assets net of goodwill and other intangible assets (the numerator) and net equity (including minorities) net of goodwill and other intangible assets (the denominator).
5) "Full time equivalent ". In the figures reported the companies consolidated proportionately, including the KFS Group, are included at 100%.
Attached are the Group's key figures, the consolidated balance sheet and income statement, the quarterly progression of the consolidated income statement and balance sheet, the fourth quarter 2010/2009 income statement comparison, and the principal divisional results.
Milan, March 23rd, 2011