Italian banks UniCredit SpA and Monte dei Paschi di Siena (MPS) have both reported a disappointing set of results for fiscal 2013, sparking fresh fears that Italy will fail to achieve its financial turnaround.
UniCredit has reported a shock 15bn ($21bn) loss, its biggest ever, on the back of a 9.3bn cost to cover bad loans in the fourth quarter, more than twice the amount set aside for 2012.
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Acquisitions attempting to expand further beyond Italy cost the bank an additional 9.3bn.
For the fourth quarter of 2012, the bank posted a loss of 553m.
Chief Executive Federico Ghizzoni said: "For UniCredit, 2013 was a turning point. Now we’ll be able to manage the bank more easily."
The large provisions for bad loans at both UniCredit and MPS show how big European banks are trying to get their balance sheets in order before the upcoming asset-quality review from the European Central Bank.
Further poor results at UniCredit include:
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By GlobalData- Revenues at the bank fell to 24bn, down 4.1% year on year;
- Cost to income ratio stands at 61.7%, up +2.5 percentage points year on year;
- Gross operating profit fell to 9.2bn, down -9.9% year on year, and
- Net interest margin fell to 1.52%, down 5 basis points.
The news of the loss was presented as a part of a balance sheet clean up, hoping to begin in a new four-year strategic plan to triple profit by 2018. That plan involves cuts of about 8,500 jobs, around 6% of UniCredit’s workforce.
UniCredit’s results for 2013 rank fifth among big European bank losses since 2005. Royal Bank of Scotland’s 43.45bn loss in 2008 is the largest.
While the bank did not close any branches in Italy in 2013, remaining level at 4,235, it shuttered 77 across its other markets, bringing its total outside of Italy to 4,767.
MPS reported a relatively better set of results, although still brought in a loss of 1.44bn for the year ending 31 December 2013.
The bank, which claims to be the world’s oldest, set aside more than 1b for bad loans.
This is MPS’s seventh consecutive quarterly loss.
"The size of the provisions doesn’t surprise anybody, I think, given also what other banks reported ahead of the [ECB’s] asset-quality review," said chief financial officer Bernardo Mingrone. "In the past, even though we applied stringent criteria [on bad loans], we were inclined to see the glass half full. Now, we tend to see it half empty."
MPS borrowed 4.1bn a year ago from the Italian government to plug a capital shortfall. This loan costs the bank around 30m a month in interest payments.
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