UPDATE 3-UniCredit eyes growth after risk costs ease in Q3

By Ian Simpson MILAN, Nov 11 (Reuters) - Italy's biggest bank UniCredit SpA said it was poised for growth after passing the peak of a huge rise in risk costs in the third quarter that had weighed on profits for a year. Risk costs fell 11 percent to 2.16 billion euros in the quarter including declines in Turkey, Russia and Ukraine, key countries in emerging Europe.

UniCredit is the biggest lender in the area and its bad debt charges have risen sharply there. Net profit for the quarter to September dropped 20 percent on the quarter to 394 million euros ($590 million), UniCredit said on Wednesday. Revenue fell from an exceptional second quarter, offsetting the effects of UniCredit's cost and job cutting. The quarterly risk cost decline was the first since the second quarter of 2008 in a sign of recovery among economies and banks battered by the financial downturn. Risk costs also fell in UniCredit's Italian and Austrian retail franchises and in its corporate business, due to improved restructuring and recovery of bad debt. "In the second quarter we had the peak in terms of loan loss provisions, the third quarter is lower," Chief Executive Alessandro Profumo told analysts on a conference call. "There are signs that impaired loans growth is decreasing." For a related graphic, please double click on: http://graphics.thomsonreuters.com/119/EZ_UNCRRC1109.gif REACHES CAPITAL GOAL UniCredit, Europe's fourth-biggest bank by market value, also slightly exceeded its goal to boost its Core Tier 1 ratio, a standard of capital held against risky assets. The bank had been at the low end among big European banks but reached 7.55 percent for Core Tier 1 at the end of September. The figure could reach 8.39 percent with the completion of a 4 billion euro rights issue, UniCredit's second capital increase this year. The combination of lessened risk and better capital means UniCredit is ready to expand, especially in central and eastern Europe and in Germany, Profumo said. "We don't want to waste capital. We continue to be cautious on new risk we assume," he said. In a research note, Goldman Sachs said the capital strengthening was "a key step forward for the bank to reassure investors on the bank's solidity and ability to improve its market position in the current environment". Eastern Europe, once dubbed "the sub-prime of Europe", is among the regions hit worst by the financial crisis as a boom driven by western bank loans, exports, investment and consumer spending slammed to a halt last year. Loan loss provisions overall nearly doubled from the fourth quarter of 2008 to the second quarter this year. UniCredit's third quarter risk costs were still twice as high as a year ago, showing the region's economic malaise. They were boosted by 249 million euros in provisions as it cleans up its loanbook in Kazakhstan as well as cost rises in Romania, Bulgaria and Hungary. BAD DEBTS PAST PEAK? Britain's top two banks, HSBC and Barclays , on Tuesday signalled bad debts may be past their peak, with HSBC declaring the first improvement for three years in losses on U.S. consumer credit. The stabilisation of bad debt charges seen by UniCredit in emerging Europe mirrors results of other banks exposed to the region, including Swedbank and Erste Group Bank . Ten analysts contributing to Thomson Reuters I/B/E/S had forecast UniCredit net profit on average of 353.6 million euros. Trading, hedging and gains in the fair value of assets hit a profit of 715 million euros, reversing a loss of 524 million euros in the same period last year. UniCredit shares were up 0.1 percent at 2.5050 euros by 1135 GMT, slightly underperforming the DJ Stoxx Banks index. Its shares change hands at 16 times next year's estimated earnings, a premium on the sector's average of 12 times due to its growth prospects in emerging Europe. For a related graphic, please double click on: http://graphics.thomsonreuters.com/119/EZ_UNCR1109.gif (Reporting by Ian Simpson with additional reporting by Boris Groendahl in Vienna; editing by Will Waterman and Hans Peters) ($1=.6676 Euro) Keywords: UNICREDIT RESULTS/ Keywords: UNICREDIT RESULTS/ ([e-mail]; [phone]; Reuters Messaging: [e-mail]@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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