UniCredit Group SPA Q2 2010 Earnings Call Transcript

UniCredit Group SPA Q2 2010 Earnings Call Transcript
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UniCredit Group SPA (UCG)

Q2 2010 Earnings Call

August 03, 2010 11:30 a.m. ET

Executives

Alessandro Profumo - CEO

Marina Natale - CFO

Federico Ghizzoni - Head, CEE Banking Operations

Karl Guha - CRO

Paolo Fiorentino - Deputy CEO & Head, GBS Strategic Business Area

Rino Piazzolla - Head, Human Resources

Roberto Nicastro - Deputy CEO & Head, Retail Strategic Business Area

Sergio Ermotti - Deputy CEO & Head, CIB & PB Strategic Business Area

Analysts

Alessandro Roccati - Macquarie

Giovanni Carriere - Autonomous Research

Matteo Ramenghi - UBS

Anna Benassi - Banca Leonardo

Domenico Vinci - Goldman Sachs

Anke Reingen - Execution

Andrew Lim - Matrix

Andrea Filtri - Mediobanca

Matteo Ghilotti - Equita

Arturo De Frias - Evolution

Carlos Garcia - Banco Santander

Andrea Vercellone - Credit Suisse

Marco Troiano - Standard and Poor's

Pier Luigi Passerone - Intermonte

Presentation

Alessandro Profumo

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Many thanks. Good afternoon or good morning to everybody. So this is the second quarter results and clearly the first half as well. So shall we start from page four of the presentation which is the executive summary. We had 310 million net profit of goodwill with impairment in the second quarter after goodwill impairment on Kazakhstan, the result is 148 million. As you know the goodwill impairment is not affecting clearly the capital base.

Revenues quarter-on-quarter are down by 4.6%, reflecting lower trading income which are down from 560 to 59 million due to change in market conditions. But what is quite good is the fact that our net interest income is slightly up, thanks to the stability in the total assets and the liabilities you will see later on and the stabilization of the EURIBOR and the net commissions have out performed the fifth consecutive quarter year-over-year. You will it up by 17% which is quite a good number.

The cost are 1.6, higher than the previous quarter. We start expenses under strict control and growth of other expenses by Forex and by cyclical items. The loan provisions are lower by 4.2% than the previous quarter, down to 1.7, 1.6 million and the cost of which has been 122 bps. You will see the detail country-by-country on the Spa basis, not mainly SBA-by-SBA, later on. The gross impaired loans are up by 5.9% quarter-on-quarter.

The total assets are stable. The funded assets are still down by 1% with loan growth starting to be capped in some areas and mainly CEE and CIB in Germany, we have a reduction in the corporate center. And we have a solid deposit strength. The structural ratio is well above 0.90 which is the internal limit and you will see the strength on the liquidity side.

Core tier 1 is at 841, 4 bps lower than the previous quarter, driven by the return to risk related asset growth, mainly in Central Eastern Europe and more specifically in Turkey and in CIB Germany and by the accrual, as you know. As we have done in the first quarter we are accruing he same deal in all the previous years.

The results of the first test on tier 1, I am always highlighting the fact that the tier 1 is different country by country due to the differences we're having in terms of total amount of hybrid capital we can have, either 7.75 after the stress and 742 is a core tier one, which again we think is a very comfortable basis because of the overall stress.

I would like also to immediately, to say in terms of stress test that as you know on the (inaudible) was focused on the trading book. We have been significantly hit by the fact that conventionally the trading book were considered with a duration of five years on a conventional basis for all the banks while the duration of our portfolio is slightly above seven months. So, clearly the year capital is significantly higher than the one we should reserve with short duration.

Talking of net profit and going through the different lines here we have the numbers for the second quarter, the quarter-and-quarter change and year and year change and then the first half we have a similar comparison .As you can see we are down 4.6 quarter-on-quarter in terms of revenue 7.6 year-on-year. If we consider the first expense it is very important to say that net interest net commission, are both up quarter-on-quarter. The cost is slightly up as I said the operating profit is down 12.8 quarter-on-quarter and semester and semester and year-on-year is 18.3% the net write-down are down by 4.2% quarter-on-quarter and 29.4% year-on-year on the quarter while on the semester is 14.1.

We are doing payment that we didn't do payment in the second quarter in the first half of last year so if we go down to the net income PPA is 206 million because we had a significantly high tax rate due to the goodwill mainly and so which is down 64% quarter-over-quarter semester and semester we are down 26.4%.

Net income excluded goodwill is 310 million as I said before which is 40% down quarter-on-quarter, 36.7 year-over-year while the semester is 11.3% down if we compare year-on-year because in income ratio at 60.7% in the second quarter and 58.8% in the first half.

Cost of risk is down both quarter-on-quarter, year-on-year semester and semester of the two different years which we think is an important signal of the beginning of an improvement in past quarter and now we go to page six, page six is very important because the stable revenues are at the highest level since the second quarter of last year 2.6% so, we have seen that the deterioration is finally and on the contrary you will see that the numbers are starting to improve.

The operating expense are up mainly by cyclical items but we see the comparison late on the net write-downs are still going down on total assets at 072 bps.

If we do see page seven as I said the net interest is up 1.5% quarter-over-quarter, the commissions are up 1.9% but also we compare it on year-over-year we are improving 17% exactly which is very important number. The trading income are down much below the level of first quarter '10due to the low level of client activity and they have fair value adjustment on credit exposure. The second quarter results reflect the changed sector condition in markets and these locations across business but later on Sergio Ermotti in the case can provide some comment. We have to say that the reduction is partially due the market area, more or less 300 million while 172 million are related to the corporate sector, which is affected by the spread option on our shares which we had positive terms in the first quarter and the buyback of our own bonds offset the gain that we realized in the first quarter of '10.

Net interest, first important signal, the average three months EURIBOR which has been 0.66 in the first quarter on average is 0.69 in the second quarter and today we are close to 0.85 if I remember correctly or is 0.89.

So it is growing, which is a very positive element because finally the compression, the significant compression we had in the mark down, and now we are starting to see some improvement. And clearly in -- we had also a positive flow of deposits. So the loan to direct funding ratio is below 100. It is 96.8%, which is also a very positive element in terms of contribution to the liquidity of the group.

Page nine, net commissions, the net commissions are slightly down for the piece which is coming from investment services. We have a decrease in fees from security feeling placement and other services in the third quarter -- sorry, the second quarter has been as we know very volatile.

So clearly the customer has been less pro active in terms of training activities while the assets under management provided a growth of 2.7%, despite the decrease in life insurance which usually are stronger in the first quarter.

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