Italy’s largest bank UniCredit failed to meet the analysts’ expectations for profit in the third quarter. Among the main reasons is the depreciation of its stake in a Turkish bank by almost 1 billion USD, as well as the payment of debts in connection with US sanctions against Iran.
However, the financial institution kept its earnings forecast for 2019, indicating that intends to strengthen the cost-cutting process to offset its lower earnings. UniCredit, however, had to shrink its capital targets after suffering a blow in the last quarter at the same time as the cheaper pound and higher risk premiums on Italian bonds.
The bank write-off 846 million EUR on its indirect share of 41% in Turkish Yapi Kredi. Calculated in euro, the shares of the sixth largest Turkish financial institution have depreciated by 54% since the beginning of the year.
However, in the words of UniCredit CEO, Jean Pierre Mustier, it is in the interest of shareholders to keep its Turkish investment and the Italian bank is ready to support Yapi Kredi’s potential capital needs.
In the third quarter, UniCredit had to write-off another 741 million EUR because of a dispute with the US Department of Justice, which accused the bank of violating the sanctions against Iran. The financial institution indicated in its report that the dispute is close to solving and its future impact is not expected to be significant.
“In the third quarter, we have taken some precautionary action on one-off effects, including the depreciation of our Yapi Kredi and the US sanctioning provisions. We also introduce some additional measures to strengthen our capital positions”, said Jean Pierre Mustier.
UniCredit’s net profit for the third quarter amounted to 29 million EUR, well below analysts’ average expectations of 907 million EUR.
The bank confirmed its profit targets in the fiscal year 2019, which amounted to 4.7 billion EUR. In this regard, UniCredit plans to cut costs by another 200 million EUR to offset its lower revenues.
The bank expects the capital adequacy ratio of core capital to be 12.0-12.5% next year, with previously forecasts of more than 12.5%.