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ECONOMY

Italy’s biggest bank more than doubled its profit in first quarter

Italian bank UniCredit said on Thursday that its net profit more than doubled in the first quarter as the massive overhaul embarked upon by its new chief executive begins to pay off.

Published: 11 May 2017 14:58 CEST
Italy's biggest bank more than doubled its profit in first quarter
CEO of Italian bank UniCredit, Jean-Pierre Mustier. Photo: Andreas Solaro/AFP

UniCredit said in a statement that net profit soared to 907 million euros ($987 million) in the period from January to March from 406 million euros a year earlier.

The figure was also much higher than analysts' forecasts for net profit of around 612 million euros.

The announcement sent UniCredit's shares up more than 4.3 percent on the Milan stock exchange, while the overall market was up a more modest 0.5 percent.

Writedowns and non-recurring items connected with the vast restructuring programme had pushed UniCredit into a massive loss of 13.6 billion euros in the fourth quarter of 2016.

“UniCredit had an encouraging first quarter with all core business lines contributing positively to the group,” said chief executive Jean-Pierre Mustier, a Frenchman who took over the reins of UniCredit last July.

“These results underpin UniCredit's strengths,” Mustier said.

They also illustrated that the restructuring programme was “already actively contributing to our performance.”

UniCredit said that it was sticking to its forecast for its core capital ratio – a key gauge of a bank's ability to withstand a financial crisis – to be “above 12 percent” at the end of the year.

The ratio stood at 11.45 percent at the end of March.

Cutting jobs and bad debt

UniCredit, Italy's biggest bank in terms of assets, was among the worst performers in stress test results published by Europe's EBA banking regulator in July.

In a bid to beef up its capital buffers, it raised 13 billion euros in fresh capital in February in a share issue that was fully taken up by investors.

As part of the restructuring programme unveiled in December, dubbed Transform 2019, UniCredit is planning to axe the equivalent of 14,000 full-time jobs from an overall workforce of 101,000 by the end of 2019.

It also plans to shed 17.7 billion euros in so-called non-performing loans, which are loans deemed as unlikely ever to be paid back.

UniCredit said its gross exposure to non-performing loans declined to 55.3 billion euros at the end of March from 56.3 billion euros at the end of last year.

Late on Wednesday, it announced an agreement to divest a portfolio of 500 million euros in non-performing loans, a deal that is expected to impact the bank's second-quarter results.

UniCredit said its first-quarter revenues amounted to 4.8 billion euros, which represented an increase of 3.4 percent year-on-year and a jump of 11.7 percent over the previous quarter.

Operating costs were down three percent year-on-year.

By Celine Cornu

READ MORE: Here's what you need to know about Italy's banking crisisHere's what you need to know about Italy's banking crisis
Photo: Giuseppe Cacace/AFP

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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