CONSOLIDATED RESULTS FOR THE FIRST NINE MONTHS OF 2011: ADJUSTED NET PROFIT OF €847 MILLION NET OF EXTRAORDINARY ONE-OFF WRITE-DOWNS, OPERATING PROFIT €7.4 BILLION
IN THE FIRST NINE MONTHS OF 2011, OPERATING INCOME SHOWS STABLE NET COMMISSIONS AND A SLIGHT DECREASE IN NET INTEREST, A GOOD RESULT IN LIGHT OF PERSISTENTLY UNFAVORABLE INTEREST RATES AND MARKET CONDITIONS
SOLID BALANCE SHEET STRUCTURE AND REGULATORY CAPITAL ARE CONFIRMED (CORE TIER I BASEL 2 AT 8.74% ). CORE TIER I BASEL 2 AT 10.35% PRO FORMA AS OF SEPTEMBER 30TH FOR THE €7.5 BILLION PROPOSED RIGHTS ISSUE.
COMPARISON BETWEEN FIRST NINE MONTHS OF 2011 AND 2010:
- Adjusted net profit of €847 million; including extraordinary, one-off write-downs accounts post a net loss of €9,320 million
- Net operating profit of €2,914 million, +2.0% YoY thanks to an 11.8% decrease in net write-downs of loans
- Operating income of €19,108 million, -2.5% YoY mainly due to a 29.4% drop in trading income
- Good trend in operating costs (+0.5% YoY, or -0.4% net of bank levies); payroll costs basically unchanged
- Stable balance sheet and regulatory capital: Core Tier 1 at 8.74% and Tier 1 at 9.68%
THE THIRD QUARTER CLOSES WITH AN ADJUSTED AFTER TAX LOSS OF €474 MILLION NET OF EXTRAORDINARY, ONE-OFF WRITE-DOWNS OF GOODWILL AND OTHER ITEMS. THESE WRITE DOWNS ARE DUE TO THE NEGATIVE IMPACT OF THE NEW MACRO AND REGULATORY SCENARIO ON EXPECTED PROFITABILITY, AS REFLECTED IN THE 2010-2015 STRATEGIC PLAN
THIRD QUARTER 2011:
- Including the above mentioned write-downs, the after-tax loss amounts to €10,641 million
- Operating profit of €1,846 million, -27.0% QoQ due to a trading loss of €285 million, caused by wider spreads on Government securities
- Operating income of €5,725 million, a decrease of 11.3% QoQ, again mainly because of the trading loss. Net interest slightly higher net of some positive non-recurring components recorded in the second quarter 2011
- Operating costs of €3,879 million, down 1.2% QoQ
- Loan loss provisions rose to €1,848 million, with the cost of risk at 131 bps, up from 84 bps in second quarter 2011
Today, the Board of Directors of UniCredit approved the consolidated results for the first nine months of 2011, with a net loss of €9,320 million due to the third quarter loss of €10,641 million. This was caused by a series of extraordinary, one-off write-downs totaling €10,167 million net of taxes, due to the negative impact of the new macroeconomic and regulatory scenario on expected profitability, in line with expected results embedded in the 2010-2015 strategic plan.
Excluding these write-downs, the adjusted net loss for the quarter amounts to €474 million.
The adjusted net loss is calculated by excluding the following extraordinary one-off write-downs:
- Goodwill write-down of €8,669 million after taxes, included in goodwill impairment. The goodwill which was originated from acquisitions made over the past few years, was then allocated to the group's various cash generating units. The recent change in those units' strategies and financial forecasts led to the write-down of the relative goodwill. The end effect is a decrease in goodwill recognized in the financial statements from €20,244 million as of 30 June 2011 to €11,529 million as of 30 September 2011, also affected by others elements mainly related to FX changes. More specifically, the goodwill from the acquisitions in Ukraine and Kazakhstan has been entirely written off;
- Write-down of the goodwill implicit in certain strategic investments of €480 million after taxes, included in losses from investments;
- Write-down of Greek Government securities by €135 million after taxes, included in losses from investments;
- Write-down of brands (HVB, BA, BdR, BdS and USB) of €662 million after taxes, included in gains/losses from PPA;
- Employee redundancy costs of €121 million after taxes, included in integration costs;
- Write-down of tax assets relating to HVB and Bank Austria by €100 million after taxes, included in income tax
Out of total write-downs of €10,260 million, €9,770 million have no impact on cash and therefore do not affect regulatory capital ratios.
The Group's quarterly financial performance was significantly hurt by market volatility, which led to a trading loss and an increase in net write-downs of loans (+56.5% QoQ). More satisfying was the 1.2% QoQ decrease in operating costs and the stability of net interest, despite the difficult market conditions on the wholesale funding side.
Operating income comes to €19,108 million for the first nine months of 2011, a decrease of 2.5% YoY, and to €5,725 million for the third quarter of 2011, a decrease of 11.3% on the previous quarter. QoQ the performance reflects a net trading, hedging and fair value loss, the seasonal decline in net commissions and dividends, as usual during the summer period and a moderate drop in net interest.
Net interest income amounts to €11,618 million for the first nine months of 2011 (-1.0% YoY). In the third quarter of 2011, net interest comes to €3,831 million, a slight decrease (-1.9%) on the €3,903 million reported for the second quarter. This item shows a slight increase QoQ when some positive non-recurring income from corporate clients in the second quarter of 2011 is factored out. Net interest income from commercial banking operations is boosted by the repricing of loans, which offset the increase in funding costs.
Net commissions in the first nine months of 2011 come to €6,268 million, in line with the same period in 2010 (-0.5%), while on a QoQ basis they decrease by 4.4% to €2,004 million. Despite the significant contribution from the CEE and Poland region (+3.5% on a constant currency and perimeter basis), this item is negatively influenced by performance in Western Europe (-5.5% QoQ). As for the main operating components, commissions on investment services suffered the greatest impact, declining by 13.2% QoQ. This was caused by massive sales of Assets Under Management due to the financial market crisis in Western Europe, Italy in particular, and adds to the seasonal decline in commissions from investment management services that naturally takes place in the summer.
Net trading, hedging and fair value income totals €705 million in the first nine months of 2011, substantially down with respect to the €999 million recorded in the same period of 2010. For the third quarter of 2011 this item shows a loss of €285 million, compared with a positive €290 million in second quarter of 2011. This loss was caused primarily by the widening of the spreads on Government securities from Southern European countries, especially Italy, and to a lesser degree by the widening of the spreads on other non-Government bonds.
Other net income in the first nine months of 2011 comes in at €184 million (€85 million of which in the third quarter of 2011), showing a similarly sharp decline compared with the €299 million recorded in the first nine months of 2010.
Operating costs amount to €11,662 million for the first nine months of the year and are essentially unchanged YoY (+0.5%). Net of bank levies, operating costs would show a decrease of 0.4% compared with the first nine months of 2010. For the third quarter of 2011 this item comes to €3,879 million, a QoQ decrease of 1.2% due mainly to other administrative expenses, in line with the usual seasonal trend.
Payroll expenses for the first nine months of 2011 are stable YoY, totaling €7,032 million, compared with €7,009 million in the same period of 2010. For the third quarter of 2011 they come in at €2,357 million, an increase of 0.6% QoQ, due primarily to an increase in Western Europe (Germany and Austria, while Italy shows falling costs within the Italian commercial business perimeter during the quarter) and a decrease in the CEE and Poland region.
Other administrative expenses, net of expense recovery, reach €4,153 million in the first nine months of 2011, an increase of 2.0% with respect to the €4,072 million recorded in the same period in 2010. For the third quarter of 2011 this item comes at €1,391 million, -1.9% QoQ due in part to a decrease in advertising, marketing and communications expenses.
Amortization, depreciation and impairment losses on intangible and tangible assets in the first nine months of 2011 amount to €838 million, compared with €843 million in the same period of 2010. The figure comes to €275 million in third quarter 2011, a decrease with respect to the €279 million recorded in the prior quarter.
The cost/income ratio stands at 61% for the first nine months of 2011 (68% in the third quarter of 2011, up from 61% in the second quarter of 2011), just slightly up from the 59% reported for the first nine months of 2010.
Operating profit in the first nine months of 2011 comes to €7,446 million, down 6.9% with respect to the same period of 2010. The third quarter of 2011 operating profit is €1,846 million, a decrease of 27.0% on the second quarter of 2011, due to the trading loss.
Loan loss provisions and provisions for guarantees and commitments in the first nine months of 2011 amount to €4,533 million (down from €5,141 million in the same period of 2010), equal to a cost of risk of 108 bps annualized. In the third quarter of 2011 they increased to €1,848 million (up from €1,181 million in the second quarter of 2011), for a cost of risk of 131 bps annualized. The steep increase reflects the fact that in Germany, in the previous quarter, there were net write-backs on loans of a non-recurring, one-off nature, while in the third quarter of 2011 loans suffered net write-downs. Furthermore, the Italian corporate portfolio underwent a series of additional write-downs as a result of the prolonged crisis.
Gross impaired loans at the end of September 2011 amount to €71.64 billion, an increase of 2.5% QoQ. Gross NPLs rise 4.1% QoQ, while the other problem loan categories rise by just 0.3% QoQ.
The coverage ratio of total gross impaired loans at September 2011 is up with respect to June 2011 and comes in at 45.5%, which reflects a 58.3% coverage of NPLs and a 27.3% coverage of other problem loans.
Provisions for risks and charges reach €671 million in the first nine months of 2011, €266 million of which accrued in the third quarter of 2011(compared with €244 million in the prior quarter).
Integration costs amount to €180 million in the first nine months of 2011, up from €27 million in the same period of 2010. In the third quarter of 2011 this item totals €174 million and includes employee redundancy costs of €168 million (€121 million after taxes), which are treated as extraordinary.
Net losses from investments come to €543 million in the first nine months of 2011, compared with net income from investments of €119 million in the same period of 2010. The third quarter of 2011 shows net losses from investments of €612 million, compared with losses of €15 million in the second quarter of 2011. The third quarter of 2011 losses include write-downs of goodwill implicit in certain strategic investments for €480 million (same amount after taxes), as well as write-downs of Greek government securities for €181 million (€135 million after taxes). If we add the write-downs done in the second quarter of 2011, total write-downs on Greek Government securities total €316 million equal to 60% of the nominal value of Greek Government bonds owned by UniCredit.
Income taxes amount to €1,167 million for the first nine months of 2011, an increase of 5.7% on the same period of the prior year, with a tax rate of 76.8%: notably higher than the 41.6% recorded for the first three quarters of 2010. The change reflects the non-deductibility of many of the write-downs charged in the third quarter of 2011, as well as the impairment of deferred tax assets recognized on the basis of the future earnings prospects implicit in the 2011-2015 strategic plan. For those reasons, the third quarter of 2011 tax rate is not meaningful.
Minorities total €287 million in the first nine months of 2011 compared with €241 million in the same period of 2010. In the third quarter of 2011, minorities total €81 million, a decrease of €18 million with respect to the prior quarter.
The impact of the Purchase Price Allocation in the first nine months of 2011 comes in at €716 million. For the third quarter of 2011 it stands at €687 million, versus €14 million for the prior quarter. This item includes the write-down of brands (HVB, BA, BdR, BdS and USB) by €662 million (net of taxes).
In the first nine months of 2011 the Group charged €8,669 million in goodwill write-downs, compared with €162 million in the same period of 2010. The goodwill which was originated from a series of acquisitions made over the past few years was then allocated to the Group's various cash generating units. The recent revision of strategies and financial forecasts in light of the strategic plan for 2011-2015 led to the write-down of the respective goodwill.
In the first nine months of 2011 the Group reported a net loss after minorities of €9,320 million, compared with a net profit of €1,003 million in the same period of the prior year. The loss results almost entirely from the third quarter of 2011 loss of €10,641 million, which is caused by the write-downs mentioned above. Excluding those write-downs, the adjusted net loss comes to €474 million.
In the third quarter of 2011 customer loans were almost stable, closing at €562.4 billion (€561.8 billion at June 2011). More specifically, Eastern Europe (CEE and Poland) showed a slight dip of 0.8% QoQ due to currency depreciation, while at constant exchange rates and perimeter there was an increase of 3.6%. Loans in Western Europe were stable on the prior quarter.
Customer deposits at September 2011 come to €392.5 billion, a decrease of 3.5% with respect to June 2011. The CEE and Poland region has grown by 4.6% QoQ (+9.9% at constant exchange rates and perimeter), while Western Europe shows a decrease of 5.3% QoQ due to the volatility of corporate customer deposits.
Securities issued fall by 7.0% in the third quarter and amount to €166.7 billion at September 2011. Most of the decline was caused by two market trends that are affecting the entire sector: issues of short-term instruments with maturities of less than one year decreased due to the structural change in the CD/CP market, while medium/long-term issues were influenced by the de facto closure of the wholesale market for unsecured bonds throughout Europe. The decreased availability of these instruments was temporarily offset by greater access to the interbank market, causing an increase in the net interbank position during the same period. At September 2011 net interbank funding amounts to €67.0 billion (€44.1 billion at June 2011).
The ratio of loans to direct funding is 101% at September 2011, confirming a balanced funding structure.
As of October 31st, 2011, the Group had more than completed the funding plan for FY 2011, reaching 118% of the planned amount, for a total of €38.1 billion in securities issued. Germany and Austria accounted for 37% of the funding plan and the rest was completed in Italy, taking advantage of the Group's geographical diversification while strengthening its liquidity position in the Groups countries of presence. Before the end of the year 2011, UniCredit may consider taking advantage of funding opportunities that arise in the market as a source of pre-funding for future needs.
Trading assets amount to €140.0 billion at September 2011, rising QoQ with respect to the €107.2 billion recorded at June 2011 due to an increase in derivatives (+€37 billion QoQ caused by fair value changes due to markets volatility), while trading assets net of derivatives show a further decline (-€4.6 billion QoQ to a total of €40.3 billion at the end of September 2011).
Total assets amount to €950.3 billion at September 2011, rising by 3.4% QoQ (due almost entirely to the derivatives component, as mentioned above). The Group's leverage ratio (2) at September 2011 comes to 23.4, an increase QoQ. The goodwill write-down has no impact on the leverage ratio, as goodwill is deducted a priori in the calculation of both assets and equity.
The Core Tier 1 ratio at the end of September 2011 is stabilized at 8.74%, 10.35% pro-forma for the proposed Rights Issue of 7.5 billion (3), with a QoQ decrease of 38 bps (of which 9bps due to the Basel 1 floor (4) application) due to the restructuring of the CASHES securities and the trend in net profit, mitigated by the release of profits allocated to dividends in the first half of 2011. Risk weighted assets at September 2011 show a 1.1% growth QoQ, to €450.0 billion. While market risk weighted assets have risen to €11.6 billion (+€1.7 billion QoQ) as a result of market volatility, there has been a decrease in credit risk weighted assets (-€1.9 billion to €383.0 billion) due to measures taken to optimize capital on a like-for-like customer loans basis, and an increase by €4.5bn due to the Basel 1 floor application. The Tier 1 ratio is 9.68% with a Total Capital Ratio of 12.80%.
At the end of September 2011, the Group had a workforce (5) of 160,552, a decrease of 617 relative to September 2010 and of 10 relative to June 2011. The drop in the third quarter of 2011 concerns several units, with the most significant decline in Families & SMEs at the divisional level and in Italy at the regional level. In Germany, there was an increase due to the hiring of apprentices in central functions.
The Group's network at the end of September 2011 consists of 9,508 branches (9,585 at September 2010 and 9,518 at June 2011).
1) Assuming CASHES restructuring
2) Assuming implementation of proposed Rights Issue
3) Assuming full implementation of proposed Rights Issue.
4) Bank of Italy foresees that RWA calculated under the BIS 2 framework cannot exceed a certain percentage of the same RWA calculated under the previous BIS 1 framework (the "floor"). UCG RWA under BIS2 are below the floor, thus the final capital requirements have been increased by 4.5bln as of September 30th RWA equivalent.
5) "Full time equivalent". FTEs data of companies consolidated proportionally, including KFS, are included at 100%, not proportionally.
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 third quarter 2011/2010 income statement comparison and the major divisional results.
The information, statements and opinions contained in this press release are for information purposes only and do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of an offer to purchase or subscribe for securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments. This press release does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States or any other jurisdiction where such an offer or solicitation would be unlawful.