Italy's UniCredit (CRDI.MI) on Wednesday sharply raised its financial targets for the year, after posting stronger-than- expected first-quarter earnings as revenues jumped.
Robust results by Italy's only bank that regulators deem of global systemic relevance are the latest evidence of strength for a sector where a string of failures, mostly across the Atlantic, has shaken investors' confidence this year.
UniCredit forecast a 2023 profit above 6.5 billion euros ($7.2 billion), up from January guidance that broadly matched its 2022 result of 5.2 billion euros.
The definition of profit under its guidance changed slightly, but the two numbers remain largely comparable, it said.
Shares, already one of the best performers in European banking this year, rose 7% in morning trading.
"We expect this outperformance to continue thanks to continued consensus upgrades, higher capital return and undemanding valuation," Citi said.
Seeking to lift UniCredit's share price to trade in line with the bank's book value, CEO Andrea Orcel has embarked on one of Europe's most ambitious capital distribution plans.
Raising its goal, UniCredit said it would return at least 5.75 billion euros to shareholders through dividends and buybacks, up from the 5.25 billion euros it is paying out over 2022 results, which in turn represents a 40% increase from 2021.
Net profit in the first three months came in at 2.06 billion euros, well above an average analyst forecast of 1.3 billion euros in a bank-provided consensus, boosted by an 18% yearly jump in revenues.
Core capital unexpectedly strengthened to 16.05% of risk-weighted assets (RWAs), which it cut in the quarter by 3% helping to offset the use of capital for the share buyback.
With the euro zone's official interest rates at a 15-year high, UniCredit said it expected to pocket more than 12.6 billion euros in 2023 from the gap between rates charged to borrowers and those paid to raise money, lifting its forecast.
Net interest income in the quarter topped expectations rising 43.6% year-on-year to 3.3 billion euros. Net fees also unexpectedly strengthened 10.7% from the previous quarter, surpassing forecasts at 2.0 billion euros.
Asked about a 1.6% decline in deposits in the quarter, Orcel told a media call the bank had such a strong liquidity position that it could afford to pursue profitability in managing its deposit base.
He said the portion of interest rate hikes that had been passed through to depositors had barely risen in the quarter to 22% from 20% at the end of last year, and was now projected at 30% in 2023 from 35-40% previously.
Orcel dismissed media speculation about potential merger and acquisition moves, saying money was best used buying back UniCredit shares.
"There are a number of opportunities we see across Europe [but] financially we still represent the best value proposition for our investors," he said.
($1 = 0.9071 euros)
