UniCredit Reports Good First Quarter; Delivers on Cost-Cutting Plans

UniCredit's transformation is taking shape as the group finalized its EUR 13 billion rights issue to regain a manageable capital position after taking a heavy hit in provisions and write-offs in the previous quarter. The fully loaded common equity Tier 1 ratio stands at 11.5% after the rights issue, which excludes asset disposals of Pioneer and Bank Pekao. Now, UniCredit looks ahead toward the task of reorganizing the group's asset quality and cost structure, which showed improvements in this quarter. Non-performing exposures decreased EUR 1 billion to EUR 55.3 billion, resulting in a gross NPE ratio of 11.4% versus a targeted 8.4% in 2019. Cost-cutting initiatives are well under way with above 30% of the targeted branch closures and employee count reductions already completed, reducing the cost/income ratio to 59.7% from 63.7% last year. Still, an adjusted return on tangible equity of 7% excluding asset disposals remains underwhelming. As a result, we maintain our fair value estimate of EUR 18 and no-moat rating.