UniCredit profit beats forecasts, core capital slightly weaker

Unicredit's profit was hit by restructuring charges in Austria and Italy in the first quarter, although earnings at Italy's biggest bank by assets beat forecasts thanks to lower costs and falling loan loss charges.

The results may provide some relief for UniCredit Chief Executive Federico Ghizzoni who is facing investor discontent and talk of possible management change due to a weak share performance and lower earnings than Intesa Sanpaolo.

GIUSEPPE CACACE | AFP | Getty Images

UniCredit's net profit was 406 million euros ($462 million), beating a 379 million euros analyst consensus distributed by the bank, but below the 512 million euros it made last year.

The bank was hit by around 260 million euros in gross restructuring costs in its home country and in Austria, where a change in the law is more than trebling the cost for UniCredit of shifting thousands of staff at its Bank Austria unit into the state pension system.

The lender's fees and commissions were resilient, rising 0.6 percent on the quarter despite turbulent financial markets.

Intesa Sanpaolo posted a 10 percent decline in commissions over the same period, although its net profit is double that of UniCredit. Lower costs and a 23 percent fall in the amount of money the bank set aside to cover for loan loss charges also boosted UniCredit's earnings.

Core capital at the Milanese bank, a nagging concern for investors who fear the lender may have to resort to a capital increase to boost its financial strength, was slightly lower.

UniCredit said its fully-loaded CET 1 ratio was 10.85 percent at the end of March, compared with 10.94 percent at the end of 2015.

It said this was mostly due to its risk-weighted assets rising because of an increase in lending. The transitional CET 1 ratio stood at 10.5 percent, against a minimum requirement of 10 percent set by the European Central Bank.

Analysts said an 800-million euro contribution to the newly created Atlante fund, set up last month to help weaker Italian banks raise cash and sell bad loans, had also eroded capital.

A weak macro-economic environment and negative interest rates weighed on UniCredit's revenues, which were down 4.7 percent from a year ago at 5.5 billion euros.

"Core earnings are a bit on the weak side because of macro conditions. But overall they're not bad if you think they've thrown in a one-off of 260 million euros in there. All of which augurs well for the future," said Fabrizio Bernardi, analyst at broker Fidentiis.

UniCredit shares rose as much as 4 percent after the results but were down 1 percent at 1318 GMT. The bank's stock has lost 53 percent in the past year due to concerns about its bad loans - which at around 80 billion euros are the highest among leading European banks - and a capital level lagging that of its peers.

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