Europe's third-biggest bank UniCredit made a net profit of 6.566 billion euros ($10.09 billion) in 2007, hardly changed on a pro-forma basis, compared with analysts' average forecast of 6.67 billion euros.
The bank, worth about $97 billion, integrated for the first time the results of domestic lender Capitalia which it bought in a $29 billion deal last year.
It said in a statement on Thursday its exposure to U.S. subprime was a "negligible" 164 million euros in December.
Italian banks have weathered a crisis over U.S. subprime loans better than others because they traditionally have a very conservative lending policy.
Analysts have fretted over UniCredit, however, because it has much more exposure to foreign markets than its peers.
Analysts at Natixis Securities said the results were "pretty reassuring," but added in a note that management's message on synergy costs and financial structure "will be fundamental for the market's view." UniCredit speaks to analysts 9.30 am London time.
Shares were down 4.1 percent to 4.56 euros at the close, lower than the DJ Stoxx index of European banks.
UniCredit said its investment banking division, which contributes as much as 20 percent of revenue, had suffered from global market turmoil in the second half of 2007, and operating profit had fallen 10.6 percent at the division in that period.
The bank said net trading, hedging and fair value income fell 46 percent to 1.06 billion euros, reflecting "a market situation which puts serious pressure on investments and trading positions."
But it added its investment banking unit "was able to cope ... and limit its losses."
UniCredit's flat profits come as medium-sized Italian lender Banca Monte dei Paschi di Siena turned in a 7 percent rise in underlying net profit in 2007 to 1.48 billion euros. Its major domestic competitor Intesa Sanpaolo reports next week.
Net profit at Europe's number-two bank, Spain's Banco Santander, rose 23 percent in 2007, and it has forecast earnings per share up over 15 percent this year.
Net profit forecasts from 10 analysts in a Reuters poll for UniCredit had ranged from 5.67 billion to 7.54 billion euros.
The bank, Italy's second-biggest by branches after Intesa Sanpaolo, said asset quality had improved, with the net amount of impaired loans on its books cut by 15 percent or 3 billion euros.
UniCredit said the four conduits set up by HVB, the German bank it bought in 2005, were consolidated in the fourth quarter.
The Bavaria TRR was wound down in February 2008.
Integration costs from the Capitalia acquisition reached 1.2 billion euros, largely for staff departures and technology asset writedowns, and UniCredit added that "the integration process is proceeding even more rapidly than expected."