BL Research Report - Unicredit

8/8/2019 BL Research Report - Unicredit

1/13

Unicredit May 13 2010

Gruppo Banca Leonardo Italian Equity Research 1

NOT FOR DISTRIBUTION IN CANADA, AUSTRALIA OR JAPAN

2008 2009 2010e 2011e 2012e

Stated EPS () 0,300 0,101 0,094 0,221 0,262YoY growth % -38,7 -66,2 -7,4 134,9 18,9Adj. EPS () 0,259 0,107 0,096 0,230 0,272

YoY growth % -48,4 -58,7 -10,4 139,0 18,5Dividend ord. () 0,000 0,030 0,040 0,070 0,090BVPS () 4,114 3,557 3,354 3,535 3,728

P/E (x) 10,6 19,1 20,6 8,8 7,4Adj. P/E (x) 12,2 18,0 20,1 8,4 7,1

Dividend Yield % 0,0 1,6 2,1 3,6 4,7P/BV (x) 0,8 0,5 0,6 0,5 0,5P/Core Tier 1 Capital (x) 1,3 0,9 0,9 0,9 0,8Cost-income ratio % 63,8 56,3 57,1 54,3 52,4

Net NPL ratio % 1,71 2,25 2,39 2,39 2,30

ROE % 7,1 3,0 2,9 6,4 7,2Adjusted ROTE % 10,6 5,3 5,0 10,9 12,0Core Tier 1 ratio % 6,5 7,6 8,4 8,6 8,6

Source: Company data, GBL estimates

UnicreditBanks

Estimate fine tuning after good 1Q10 results

Unicredits 1Q10 results came better than we expected mainly

thanks to slightly lower provisions. Management appeared cautiouson market trends, while confident on a slowdown of credit qualityworsening and on capital strength. We fine tune our FY2010-12eestimates keeping the EPS broadly unchanged (-0.2%) and confirmour 2.2 target price and UNDERWEIGHT rating. There is somepotential upside (+14%) but, given the current market volatility andno relative value within the banking sector, not enough to take thechallenge in our view.

Better-than-expected 1Q10 resultsUnicredit reported a +15% YoY increase of the net profit in 1Q10 up to

520m vs. our 447m estimate (and consensus 343m) mainly thanks to

-4.4% lower-than-expected provisions. The main positive surprises were net

commissions (+1.8% above our estimate) and provisions (127bps annualized

vs. our 136bps estimate), while the main negative surprises were costs (+0.8%

above our estimate) and tax rate (38.6% vs. our 34.6% estimate).Slowdown of credit quality worsening

Credit quality kept worsening but slowing down compared with the previous

quarters, as we expected. Total net problematic loans rose +3.5% QoQ (after

+57% YoY in FY09) to 5.7% of loans (5.5% at end-2009), mainly due to

+5.8% QoQ higher net watchlist loans and +3.1% QoQ net NPLs.

Management guidanceDuring yesterdays conference call management appeared cautious on market

trends, particularly on interest rates and loan volumes (hence on net interestincome), while confident on a slow down of credit quality worsening and on

capital strength. They announced to be looking for strategic options for their

asset manager Pioneer, claiming its limited size (185bn AUM) as a catalyst

for change. They appeared more inclined to search for an industrial deal rather

than a disposal.Estimate fine tuning, valuation confirmed

Following the 1Q10 result announcement and the management guidance, we

fine tune our FY2010-12e estimates, keeping net profit broadly unchanged (-

0.2%) now pointing to a +44% CAGR 2009-12e. We confirm our target price

of2.2, which implies a fair 10x adj. P/E11e and a fair 1.1x P/Core Tier 1

Capital in FY10e and suggests a +14% potential upside.

May 13 2010

UNDERWEIGHT

Target price ord.: 2.2

Current price ord.: 1.934

(price as of 12/5/2010)

Outstanding shares (m)

19,3325

Mkt. Cap. (m)

37,375

Avg. daily volumes (30 days)

481,036,100

Reuters/Bloomberg

CRDI.MI/CRD IM

Last 12 months

High: 2.6 Low: 1.6

12-month share price performanceUNICREDIT 12/5/10

M J J A S O N D J F M A M

1.40

1.60

1.80

2.00

2.20

2.40

2.60

2.80

UNICREDIT

FTSE ITALIA A LL SHARE - PRICE INDEX

Source: Thomson Datastream

Performance ord. 1M 3M 12M

Absolute (%) -15 1 8

To FTSE Italy (%) -5 1 4

To MSCI Europe (%) -8 -3 -8


Anna Maria BenassiTel. +39.02.72206.603

[email protected]


2/13




Higher-than-expected 1Q10 results

Unicredit reported 1Q10 results above our (and even more consensus)

estimates, with net profit up +15% YoY and +40% QoQ to

520m vs. our447m estimate (and consensus 343m) mainly thanks to -4.4% lower-than-expected provisions. The main positive surprises were net commissions

(+1.8% above our estimate) and provisions (127bps annualized vs. our136bps estimate), while the main negative surprises were costs (+0.8%

above our estimate) and tax rate (38.6% vs. our 34.6% estimate).

The gross operating income increased +6.9% YoY (+10.9% QoQ) in excessof2.9bn (+0.8% above our estimate), following revenues up +3.7% YoY

(+4.9% QoQ) and +0.8% above our estimate, and costs up +1.5% YoY

(+0.8% QoQ) and +0.8% above our estimate.

Core revenues dropped -6.3% YoY (-0.7% QoQ) to almost 6.1bn (+0.8%

higher than we expected), dragged down by the very weak net interestincome (-15.8% YoY, -2.5% QoQ and in line with our estimate), hit by: 1)

the sharp impact of the falling interest rates mainly on the mark-down (in

fact retail divisions suffered a -24% YoY drop of the net interest income); 2)dropping lending volumes (-6.1% YoY, -0.2% QoQ, -0.7% below our

estimate); 3) the nil contribution from maximum overdraft commissions (ca.130m in 1Q09, nil in 4Q09). Net commissions continued their positive

trend growing +17.5% YoY and +2.6% QoQ and beating our estimate by+1.8%.

Net profit up +16% YoY

Gross operating income up +6.9%

YoY driven by revenues up +3.7%

YoY

Table 1 - UNICREDIT: Quarterly results (m)

1Q09 2Q09 3Q09 4Q09 1Q10 YoY QoQ 1Q10e Act/Est

Net interest income 4,650 4,710 3,927 4,017 3,917 -15.8% -2.5% 3,909 0.2%

Net commissions 1,846 1,889 1,931 2,114 2,169 17.5% 2.6% 2,131 1.8%

Trading income/dividends/associates -39 1,133 778 243 620 nm 155.1% 607 2.1%

Other income 204 216 202 214 202 -1.0% -5.6% 207 -2.4%Total revenues 6,661 7,948 6,838 6,588 6,908 3.7% 4.9% 6,854 0.8%

Total costs 3,921 3,980 3,938 3,948 3,980 1.5% 0.8% 3,949 0.8%

Gross operating income 2,740 3,968 2,900 2,640 2,928 6.9% 10.9% 2,905 0.8%

Net provisions 1,718 2,586 2,318 2,300 1,947 13.3% -15.3% 2,037 -4.4%

Net operating income 1,022 1,382 582 340 981 -4.0% 188.5% 868 13.0%

Extraordinary income* -165 -439 103 218 4 nm -98.2% -28 nm

Pre-tax profit 857 943 685 558 985 14.9% 76.5% 840 17.2%

Tax charges 334 363 188 124 403 20.5% 224.6% 311 29.4%

Minorities 76 90 103 63 63 -17.1% 0.0% 83 -24.0%

Net profit 447 490 394 371 520 16.2% 40.0% 447 16.3%

* including also PPA impact, restrcturing charges, results from discontinued operations Source: Company data, GBL estimates

Table 2 - UNICREDIT: Divisional breakdown* (m)

1Q09 4Q09 1Q10 YoY QoQ 1Q09 4Q09 1Q10 YoY QoQ

Revenues Gross operating income

Retail 2,665 2,311 2,307 -13.4% -0.2% 877 611 595 -32.2% -2.6%

CEE (incl. Poland) 1,566 1,541 1,508 -3.7% -2.1% 885 814 774 -12.5% -4.9%

Corporate/MIB 2,272 2,234 2,555 12.5% 14.4% 1,440 1,411 1,708 18.6% 21.0%

AM/Private bnkg 387 405 398 2.8% -1.7% 133 153 139 4.5% -9.2%

Other -329 -48 38 nm nm -596 -349 -288 -51.7% -17.5%

Consolidated 6,561 6,443 6,806 3.7% 5.6% 2,740 2,640 2,928 6.9% 10.9%

Provisions Pre-tax profit**

Retail 511 331 510 -0.2% 54.1% 364 278 91 -75.0% -67.3%

CEE (incl. Poland) 354 552 355 0.3% -35.7% 541 272 438 -19.0% 61.0%

Corporate/MIB 800 1,270 991 23.9% -22.0% 571 148 745 30.5% 403.4%

AM/Private bnkg 3 14 4 33.3% -71.4% 130 136 136 4.6% 0.0%

Other 50 132 87 74.0% -34.1% -684 -214 -366 -46.5% 71.0%

Consolidated 1,718 2,300 1,947 13.3% -15.3% 922 620 1,044 13.2% 68.4%

* based on Unicredit reclassification ** pre-PPA impact Source: Company data


3/13




The trading income strongly recovered after the decline in 4Q09 from thepeaks of 2Q09/3Q09. It reached 560m, in line with our 550m estimate but

much higher than the consensus 433m, from 152m in 4Q09 and -93m in1Q09, still at a 45% discount to the 2Q09 peak. When excluding the tradingincome contribution, consolidated revenues would have fallen -6% YoY and

-1.4% QoQ.

The net operating income declined -4% YoY to almost 1bn but exceededour estimate by +13% mainly thanks to -4.4% lower-than-expected

provisions. In fact provisions increased only +13.3% YoY (loan lossprovisions +8.5% YoY) with the annualized cost of risk at 127bps vs.

110bps in 1Q09, 146bps in 4Q09, 147bps in FY09 and our 136bps estimate.

The Group is progressively improving vs. the peak of 164bps in 2Q09.

Chart 1 - UNICREDIT: Cost of risk trend (bps)

40

60

80

100

120

140

160

180

2007 1Q08 2Q08 3Q08 4Q08 2008 1Q09 2Q09 3Q09 4Q09 2009 1Q10

Source: Company data

The 19bps QoQ improvement of the cost of risk was mainly driven by the

CEE/Polish division (97bps improvement from 278bps in 4Q09 to 178bps in1Q10), itself a result of the significant writebacks in Turkey (cost of risk

from 497bps to -5bps) and the improvement in Russia (from 257bps to142bps), Kazakhstan (from >15% to 268bps) and in the Czech Republic(from 166bps to 74bps). In Poland the cost of risk slightly worsened from

69bps to 72bps. On the contrary, the retail division sharply worsened from

74bps in 4Q09 (but its should have been 95bps excluding a 85m one-off) to118bps in 1Q10, mainly due to the deterioration in Italy from 88bps to

148bps (above the previous peak of 146bps in 2Q09), explained bymanagement as a migration from watchlist to NPLs requiring more coverage

and mainly affecting small businesses.

Net operating income down -4%

YoY driven by provisions up +13%

YoY

Cost of risk by division

Table 3 - UNICREDIT: Cost of risk by division (m)

2008 1Q09* 2Q09* 3Q09* 4Q09* 2009 1Q10

Corporate & investment banking 68 96 172 150 162 142 138

Retail 64 108 117 91 74 98 118

of which Italy 74 130 146 108 88 118 148

of which Germany 18 37 7 14 9 17 14

CEE** 77 175 210 280 274 231 174

Consolidated 62 109 164 150 146 147 127

*annualised **including Poland Source: Company data


4/13




In 1Q10 Unicredit reported a 4m extraordinary income (better than our -28m estimate and vs. -165m in 1Q09 and +218m in 4Q09), because the

68m capital gains (mainly from real estate deals) were almost entirelyoffset by a -58m PPA impact and -6m integration charges. The tax rate(pre-PPA impact) was high at 38.6% vs. 36% in 1Q09, 20% in 4Q09 and our

34.6% estimate, mainly due to the Italian operations affected by falling

results and the high weight of IRAP and the Robin Hood tax (not directly

related to revenues and the provisioning trend).

Credit quality kept worsening, broadly in line with our expectations (+0.4%higher than we expected) and slowing down compared with the previous

quarters. Total problematic loans rose +4.3% QoQ gross (+34% YoY) and

+3.5% QoQ net (+48% YoY) to 5.7% of loans (5.5% at end-2009), mainlydue to +5.8% QoQ (+61% YoY) higher net watchlist loans weighing 2.2%

on loans (2.0% at end-2009) with a broadly stable 30% coverage. Gross

NPLs increased +4.2% QoQ (+19% YoY) and net ones rose +3.1% QoQ(+31% YoY), weighing 2.3% on loans (2.2% at end-2009) with a coverage

slightly increased to 61.7% (61.3% at end-2009). Net restructured loansincreased +3.3% QoQ (+74% YoY) weighing 0.6% on loans after an

increased coverage at 26.5%, while net past-due loans declined -2.1% QoQ(+55% YoY) weighing 0.6% on loans with a stable coverage of almost 11%.

The Core Tier 1 ratio reached 8.45% at end-March 2010 from 7.62% at end-FY09 (but 8.46% pro-forma including the 4bn capital increase performed

in February). After a continuous falling of RWAs through FY09 (-11.7%YoY), in 1Q10 RWAs increased +0.8% QoQ while the Core Tier 1 Capitalremained broadly stable including the benefit of the forex impact andaccruing the same FY09 dividend (management stated that the eventual

rebalancing will be over in 4Q10).

Nil extraordinary contribution and

high tax rate

Slowdown of credit quality

worsening

Stable capital ratios

Table 4 - UNICREDIT: Credit quality (m)

Dec-07 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 QoQ YoY

Gross NPLs 27759 28,772 28,717 30,907 32,835 32,836 34,220 4.2% 19.2%

Coverage ratio 67.5% 63.6% 65.3% 64.2% 62.7% 61.3% 61.7%

Net NPLs 9017 10,464 9,960 11,071 12,239 12,692 13,090 3.1% 31.4%

on loans 1.6% 1.7% 1.7% 1.9% 2.2% 2.2% 2.3%

Gross watchlist loans 5937 8,949 10,786 11,497 13,152 16,430 17,422 6.0% 61.5%

Coverage ratio 32.1% 31.0% 29.6% 31.7% 31.4% 29.7% 29.9%

Net watchlist loans 4034 6,177 7,589 7,847 9,026 11,547 12,217 5.8% 61.0%

on loans 0.7% 1.0% 1.3% 1.3% 1.6% 2.0% 2.2%

Gross restructured loans 1654 1,856 2,812 4,294 4,205 4,436 4,648 4.8% 65.3%

Coverage ratio 27.1% 32.0% 30.1% 24.0% 26.9% 25.5% 26.5%

Net restructured loans 1205 1,263 1,965 3,263 3,073 3,306 3,415 3.3% 73.8%

on loans 0.2% 0.2% 0.3% 0.6% 0.5% 0.6% 0.6% Gross past-due loans 1856 2,205 2,526 2,935 3,306 3,932 3,849 -2.1% 52.4%

Coverage ratio 10.1% 12.7% 12.7% 12.6% 12.4% 10.9% 10.9%

Net past-due loans 1669 1,924 2,204 2,564 2,897 3,504 3,429 -2.1% 55.6%

on loans 0.3% 0.3% 0.4% 0.4% 0.5% 0.6% 0.6%

Gross problematic loans 37206 41782 44841 49633 53498 57634 60139 4.3% 34.1%

Coverage ratio 57.2% 52.5% 51.6% 50.1% 49.1% 46.1% 46.5%

Net problematic loans 16915 19828 21718 24745 27235 31049 32151 3.5% 48.0%

on loans 2.9% 3.2% 3.6% 4.2% 4.8% 5.5% 5.7%

Customer loans 576,320 612,480 600,672 585,087 565,457 564,986 563,894 -0.2% -6.1%



5/13




Feedback on yesterdays conference call

During yesterdays conference call management appeared cautious onmarket trends, particularly on interest rates and loan volumes, while

confident on a slow down of credit quality worsening and on capitalstrength. In our view the most interesting/useful comments were the

following:

Credit quality worsening has already started to slow down (net problematic

loans +3.5% QoQ in 1Q10 after +14% QoQ in 4Q09, +10% QoQ in 3Q09,+14% QoQ in 2Q09, +9.5% QoQ in 1Q09) and this should continue in the

coming quarters. for FY10e we expect a +8.5% YoY increase of netproblematic loans after +56% YoY in FY09 and +3.5% QoQ as at March

2010). Management talked about stabilization in Italy both in retail andcorporate divisions.

The cost of risk came down to 127bps annualized in 1Q10 vs. 147bps inFY09 and the 164bps peak in 2Q09, and management reiterated the concept

of stabilization without affirming a FY10 target nor admitting any

seasonality.They said that the jump of the cost of risk in the retail division (to 118bps vs.

98bps in FY09 and the 117bps peak in 2Q09) is mainly related to themigration from watchlist to NPLs particularly in Italy (in fact cost of risk

reached 148bps vs. 118bps in FY09 and the 146bps in 2Q09) and shouldimprove in the coming quarters.

They said that the improvement of the cost of risk in the CEE/Polish division(to 127bps vs. 231bps in FY09 and the 280bps peak in 3Q09) should be

sustainable with a positive view on Turkey (-5bps annualised in 1Q10obviously not sustainable), Poland (72bps), Romania (326bps) and Ukraine

(638bps), also thanks to a good level of write backs, while the situation inKazakhstan (268bps) remains tough.

Last March management provided a FY10 guidance of no improvement of

the cost of risk for the Italian Retail division and of a still high cost of risk inCEE although below FY09 peaks.

The net interest income should stabilize around the 1Q10 level and should

not go up in the coming quarters given the low expectations of an interestrate increase and a still weak loan demand (except in some CEE countries

and in retail mortgages, even if the Group FY10 budget assumes a loanincrease), although management do not expect a significant impact on

funding from the current volatility of the bond market. They were more

positive on the net interest income trend in CEE rather than in CIB and retail

Credit quality and cost of risk

Net interest income

Table 5 - UNICREDIT: Capital ratios (m)

Dec-07 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 QoQ

Core Capital 32,570 33,075 33,678 33,286 34,677 34,456 38,524 11.8%

Tier I Capital 36,577 37,157 37,782 37,208 38,535 39,054 42,854 9.7%

Total Capital 56,474 58,412 55,895 55,046 55,483 54,380 58,259 7.1%

Total RWAs 558,639 512,532 503,665 485,816 459,300 452,388 455,955 0.8%

Hybrids included in Tier I Capital 4,123 4,458 4,529 4,361 4,219 4,967 4,667 -6.0%

Core Tier I Ratio 5.83% 6.45% 6.69% 6.85% 7.55% 7.62% 8.45%

Tier I Ratio 6.55% 7.25% 7.50% 7.66% 8.39% 8.63% 9.40%Total Capital Ratio 10.11% 11.40% 11.10% 11.33% 12.08% 12.02% 12.78%

Hybrids on Tier I capital 11.3% 12.0% 12.0% 11.7% 11.7% 12.7% 10.9%



6/13




divisions. We underline that the average 3M Euribor rate was >1.2% in2009, starting with 2% in 1Q09 and ending with 0.7% in 4Q09 while it is

running at 0.66% YTD (0.682% yesterday). We expect a -7.6% YoY declineof net interest income in FY10e, which implies a -4.5% YoY decline inApril-December 2010e.

Management reiterated their focus on commissions as a revenue growth

driver in FY10 (already stated in March) given the low interest rateenvironment leaving not much room for maneuvers on the net interest

income side. In 1Q10 net commissions advanced +17.5% YoY on an easycomparison (1Q09 weighed 8.3kemployees exiting the group YoY) mainly as a consequence of the contract

renewal (on average +4% of unit staff cost) and of an increasing accrual of

bonuses. They also stated that cost management remains a key element in

the current tough market environment. They admitted for the first time everthat the reorganization plan in Italy will also bring cost benefits from FY11

on, although reiterating the rationale for it remains the improvement ofcustomer service. We expect a -1.6% YoY cost decline in FY10e while a

+0.8% YoY increase in FY11e.

Management stated that the tax rate charged in 1Q10 at 38.6% (before thePPA impact) is only slightly higher than what they expect for FY10 (our

previous estimate was 33.6% and we have increased it to 35%). The mainreason is the low operating contribution of the Italian operations, where theIRAP and Robin Hood tax are not directly linked to the revenue level.

Management reiterated their confidence on capital strength (Core Tier 1 ratio

at 8.45% at March 2010 stable QoQ when on a pro-forma basis on the 4bncapital increase finalized last February) and specified that, differently from

last year, this year they are accruing the dividend on a quarterly basis basedon the FY09 approved 580m (stock ex-dividend on May 24) with the

possible difference to be added/deducted in 4Q10. They said that for BankPekao they assume a 30% payout ratio.

After the official announcement of looking for strategic options for the asset

management subsidiary Pioneer, management underlined having started theprocess because they are no longer under capital pressure and can take a

decision fully based on operating and financial convenience. They claimed

the limited size as a catalyst for change (with 185bn assets undermanagement at end-March they rank 62 on a global basis and 17 on a

Commissions

Trading income

Costs

Tax rate

Capital ratios

Strategic options on Pioneer


7/13




European basis) while focusing on maintaining the customer service high.They said all options are open but we noticed answering questions that the

approach was more for an industrial partnership rather than a disposal thatcould eventually involve an IPO to ease the valuation process. We believealso a break-up of non-European operations (mainly US with ca. 35bn

assets under management) could make sense prior to a partnership. In the

Unicredit FY09 annual report the asset management CGU has an accounting

value of1,859m, of which 1719m as goodwill, while Unicredit allocatesca. 360m capital to the division in its EVA calculation. Based on the listed

peers market multiples, Pioneer could be valued in a 3.5/4bn range (ca. 2%of AUM and 15x P/E).

The Unicredit German subsidiary HVB announced having presented abinding offer to the Swedish SEB to acquire its German branches, without

disclosing any details (press rumors indicated a 450m price offer). SEBs

German retail banking business (174 branches) counts approx. 1m clientsand in FY09 it realized ca. 270m revenues and a ca. -130m net operating

loss after 54m of loan-loss provisions. In FY09 Unicredits German retaildivision (847 branches) reported almost 1.5bn revenues with 1.3bn costs

(89% cost-income ratio) and a 28m pre-tax profit after 62m of loan-lossprovisions and 63m of restructuring costs.

Management disclosed the exposure at end-March 2010 to sovereign bonds

of the so-called PIGS (85% of which in the banking book): 993m to Greece

(35% expiring within two years, 50% within four years), 555m to Spain(22%, ca. 65/70%), 66m to Ireland, 32m to Portugal. They also declared

they have an Italian Treasury bond portfolio of 31.5bn, of which 46%

expiring within a year, and that a 13bps worsening of the CDS on Italian

treasury bonds should impact the Group Core Tier 1 ratio by -1bps.

Estimate fine tuning, valuation confirmed

Following the 1Q10 result announcement and the management guidance, we

fine tune our FY2010-12e estimates.

Our net profit estimates remains broadly unchanged (-0.2% on average, withFY10e down -2.5% to 1816m), as a consequence of +0.4% increased

revenues (+3.7% increased commissions, +8.3% increased trading income, -1.8% decreased net interest income), broadly unchanged costs and

provisions, +5.6% increased taxes and -8.7% decreased minorities.

We now expect a +44% CAGR 2009-12e in net profit (+43% adjusted for

extraordinaries) driven by a +2.9% revenue CAGR, a +0.4% cost CAGR and

a -13.6% total provision CAGR (cost of risk down to 83bps in FY12e from

147bps in FY09).

Binding offer on SEBs German

branches

Exposure to PIGS and to Italian

sovereign debt

Net profit broadly unchanged


8/13




We confirm our 2.2 target price on Unicredit after our estimate fine tuning,assuming a +14% normalized earnings CAGR 2009-19e - consisting of a

+43% CAGR 2009-12e and a +3.3% CAGR 2012-19e - a 10% sustainableROCI (vs. 4.8% in FY09 and FY10e, 11% in FY11e) and a 9.3% cost of

equity.

Based on our fair value, UCI would trade at 23.7x and 10x the FY10e andFY11e adjusted P/Es respectively, at 0.7x the P/BV10e and at 1.1x the

FY10e P/Core Tier 1.

Trends in FY10e

After the 1Q10 achievements and in order to match our new FY10e

estimates, in the nine-month April-December period Unicredit has toincrease its net operating income by +6.7% YoY (vs. -4% YoY in 1Q10) and

its net profit by +3.3% YoY (vs. +16% YoY in 1Q10). We underline that1Q09 accounted for 30.7% of FY09 net operating income and 26% of FY09

net profit, mainly thanks to the very low weight of provisions (19%), whilefor 1Q10 on FY10e we expect a weight of 28.5% and 28.6% respectively

with provisions at 23.6%.

In April-December we expect the gross operating income to decline -8%YoY (+6.9% YoY in 1Q10), driven by revenues down -5% YoY (of which

core revenues +0.5% YoY and trading income 61% YoY due to the recordlevel achieved in 2Q09 and 3Q09) and costs down 2.6% YoY (+1.5% YoY

in 1Q10).

Total provisions should decline -13% YoY (after +13% YoY in 1Q10), for a

136bps annualized cost (127bps in 1Q10) absorbing 72% of the gross

operating income (vs. 66% in 1Q10 and 73% in FY09).

Target price confirmed at 2.2

Table 6 - UNICREDIT: Estimate change (m)

2010e 2010e Change 2011e 2011e Change 2012e 2012e Change 2010/12e

old new old new old new avg. change

Net interest income 16,341 15,996 -2.1% 17,427 17,107 -1.8% 18,551 18,279 -1.5% -1.8%

Net commissions 8,417 8,765 4.1% 8,896 9,221 3.7% 9,359 9,664 3.3% 3.7%

Trading income/dividends/associates 1,509 1,609 6.6% 1,547 1,647 6.5% 1,593 1,693 6.3% 6.5%

Other income 848 848 0.0% 865 865 0.0% 883 883 0.0% 0.0%

Total net revenues 27,116 27,220 0.4% 28,737 28,841 0.4% 30,386 30,518 0.4% 0.4%

Total costs 15,505 15,541 0.2% 15,627 15,663 0.2% 15,946 15,983 0.2% 0.2%

Gross operating income 11,611 11,679 0.6% 13,109 13,178 0.5% 14,440 14,535 0.7% 0.6%

Net provisions 8,239 8,239 0.0% 5,782 5,782 0.0% 5,759 5,759 0.0% 0.0%

Net operating income 3,372 3,440 2.0% 7,327 7,396 0.9% 8,681 8,776 1.1% 1.2%

Extraordinary income 0 0 nm 0 0 nm 0 0 nm nm

Pre-tax profit 3,372 3,440 2.0% 7,327 7,396 0.9% 8,681 8,776 1.1% 1.2%

Tax charge 1,131 1,272 12.4% 2,572 2,699 5.0% 3,047 3,159 3.7% 5.6%

Minorities 378 352 -6.8% 472 430 -9.0% 605 546 -9.7% -8.7%

Net profit 1,863 1,816 -2.5% 4,283 4,267 -0.4% 5,029 5,071 0.8% -0.2%

Dividend () 0.040 0.040 0.0% 0.070 0.070 0.0% 0.090 0.090 0.0% 0.0%

Source: GBL estimates


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Price charts

Unicredit share price performance (12-month) Unicredit share price performance (3-yr)UNICREDIT 12/5/10

M J J A S O N D J F M A M

1.40

1.60

1.80

2.00

2.20

2.40

2.60

2.80

UNICREDIT

FTSE ITALIA ALL SHARE - PRICE INDEX


UNICREDIT 12/5/10

2007 2008 2009 2010

0

1

2

3

4

5

6

7

UNICREDIT

FTSE ITA LIA ALL SHARE - PRICE INDEX


Table 7 - UNICREDIT: Trends in FY10 (m)

1Q09 1Q10 YoY Apr-Dec.09 Apr-Dec.10e YoY FY09 FY10e YoY

Net interest income 4,650 3,917 -15.8% 12,654 12,079 -4.5% 17,304 15,996 -7.6%

Net commissions 1,846 2,169 17.5% 5,934 6,596 11.2% 7,780 8,765 12.7%

Trading income/dividends/associates -39 620 nm 2,154 989 -54.1% 2,115 1,609 -23.9%

Other income 204 202 -1.0% 632 646 2.3% 836 848 1 .5%

Total revenues 6,661 6,908 3.7% 21,374 20,312 -5.0% 28,035 27,220 -2.9%

Total costs 3,921 3,980 1.5% 11,866 11,561 -2.6% 15,787 15,541 -1.6%

Gross operating income 2,740 2,928 6.9% 9,508 8,751 -8.0% 12,248 11,679 -4.6%

Net provisions 1,718 1,947 13.3% 7,204 6,292 -12.7% 8,922 8,239 -7.7%

Net operating income 1,022 981 -4.0% 2,304 2,459 6.7% 3,326 3,440 3.4%

Extraordinary income* -165 4 nm -118 -4 -96.6% -283 0 nm

Pre-tax profit 857 985 14.9% 2,186 2,455 12.3% 3,043 3,440 13.0%

Tax charges 334 403 20.5% 675 869 28.8% 1,009 1,272 26.0%

Minorities 76 63 -17.1% 256 289 13.0% 332 352 6.1%

Net profit 447 520 16.2% 1,255 1,297 3.3% 1,702 1,816 6.7%

* inc luding also PPA impact, restructuring charges, resul ts from discont inued operat ions Source: Company data, GBL est imates

GBL historical target price and rating changes for Unicredit in the last 12 months

Date Target price () Rating Initiating coverage

13/05/2002 5.9 BUY 13/05/2002

14/05/2009 2.25 BUY

19/05/2009 1.92 BUY

25/05/2009 1.92 UNDERWEIGHT





.

.

.

ource: est mates


10/13




Consolidated financial statement

Profit & Loss account (m)2007 2008 2009 2010e 2011e 2012e

CAGR2009-12e

Net interest income 16.199 18.373 17.304 15.996 17.107 18.279 1,8%

YoY growth 9,9% 13,4% -5,8% -7,6% 6,9% 6,8%

Net commissions 10.694 9.093 7.780 8.765 9.221 9.664 7,5%

YoY growth 6,2% -15,0% -14,4% 12,7% 5,2% 4,8%

Core revenues 26.893 27.466 25.084 24.762 26.328 27.942 3,7%

YoY growth 8,4% 2,1% -8,7% -1,3% 6,3% 6,1%

Trading income, dividends and associates 2.200 -1.368 2.115 1.609 1.647 1.693 -7,1%

YoY growth -28,2% nm nm -23,9% 2,4% 2,8%

Other income 1.002 925 836 848 865 883 1,8%

YoY growth 7,5% -7,7% -9,6% 1,5% 2,0% 2,0%

Total revenues 30.095 27.023 28.035 27.220 28.841 30.518 2,9%

YoY growth 4,5% -10,2% 3,7% -2,9% 6,0% 5,8%

Staff costs 9.670 9.918 9.098 9.011 9.083 9.293 0,7%

General expenses 5.790 6.019 5.408 5.274 5.343 5.439 0,2%

Depreciation 1.289 1.312 1.281 1.255 1.237 1.251 -0,8%

Total costs 16.749 17.249 15.787 15.541 15.663 15.983 0,4%

YoY growth -0,5% 3,0% -8,5% -1,6% 0,8% 2,0%

cost income ratio 56% 64% 56% 57% 54% 52%Gross operating income 13.346 9.774 12.248 11.679 13.178 14.535 5,9%

YoY growth 11,4% -26,8% 25,3% -4,6% 12,8% 10,3%

Goodwill impairment 1 750 0 0 0 0 nm

Total net provisions 3.221 4.044 8.922 8.239 5.782 5.759 -13,6%

of which loan loss provisions 2.468 3.700 8.313 7.729 5.433 5.447 -13,1%

Net operating income 10.124 4.980 3.326 3.440 7.396 8.776 38,2%

YoY growth 13,6% -50,8% -33,2% 3,4% 115,0% 18,7%

Extraordinary income* 321 1.191 -283 0 0 0 nm

Pre-tax profit 10.445 6.171 3.043 3.440 7.396 8.776 42,3%

YoY growth 3,8% -40,9% -50,7% 13,0% 115,0% 18,7%

Tax charges 3.221 1.641 1.009 1.272 2.699 3.159 46,3%

tax rate 31% 27% 33% 37% 37% 36%

Minorities 718 518 332 352 430 546 18,0%

Net profit 6.506 4.012 1.702 1.816 4.267 5.071 43,9%

YoY growth -1,3% -38,3% -57,6% 6,7% 134,9% 18,9%Stated EPS () 0,488 0,300 0,101 0,094 0,221 0,262 37,3%

YoY growth -1,3% -38,7% -66,2% -7,4% 134,9% 18,9%

Adjusted EPS () 0,500 0,259 0,107 0,096 0,230 0,272 36,4%

YoY growth 6,1% -48,4% -58,7% -10,4% 139,0% 18,5%

BVPS () 4,326 4,114 3,557 3,354 3,535 3,728 1,6%

YoY growth 10,6% -5,4% -13,5% -5,7% 5,4% 5,4%

Ordinary dividend () 0,260 0,000 0,030 0,040 0,070 0,090 44,2%

YoY growth 8,3% -100,0% nm 33,3% 75,0% 28,6%

* also including PPA impact, net income from discontinued operations and restructuring chargesSource: Company data, GBL estimates


11/13




Balance Sheet and Key Data2007 2008 2009 2010e 2011e 2012e

CAGR2009-12e

Balance Sheet (m)

Customer loans 575.735 612.480 564.986 581.394 610.464 656.249 5,1%

Customer funding 630.301 591.290 596.396 615.622 642.710 672.274 4,1%

Net interbank exposure -60.589 -96.850 -28.531 -31.836 -28.395 -20.930 nm

Total assets 1.021.504 1.045.612 928.760 974.814 988.461 1.014.161 3,0%

Shareholders' equity 57.724 54.999 59.689 64.825 68.319 72.037 6,5%

Customer loans/total assets 56% 59% 61% 60% 62% 65%

Customer deposits/total liabilities 62% 57% 64% 63% 65% 66%

Customer loans/customer deposits 91% 104% 95% 94% 95% 98%

Credit Quality

Gross NPL ratio 4,6% 4,5% 5,6% 6,2% 6,4% 6,2%

Net NPL ratio 1,7% 1,7% 2,2% 2,4% 2,4% 2,3%

Coverage ratio 64,2% 63,6% 61,3% 63,5% 64,5% 65,0%

Gross watchlist ratio 1,0% 1,4% 2,8% 3,1% 3,3% 3,3%

Net watchlist loan ratio 0,7% 1,0% 2,0% 2,2% 2,4% 2,3%

Coverage ratio 32,1% 31,0% 29,7% 32,0% 33,0% 34,0%

Gross problematic ratio 6,2% 6,6% 9,7% 10,8% 11,0% 10,8%

Net problematic ratio 2,8% 3,2% 5,5% 5,8% 5,8% 5,7%

Coverage ratio 57,2% 52,5% 46,1% 49,0% 50,0% 50,7%

Net NPLs/Sh. equity (incl. minorities) 15,9% 18,0% 20,2% 20,3% 20,2% 19,7%

Net watch list loans/Sh. equity (incl. min.) 6,5% 10,6% 18,4% 19,1% 20,0% 20,0%

Loan loss provisions/Customer loans 0,43% 0,60% 1,47% 1,33% 0,89% 0,83%

Total provisions/Gross operating income 24,1% 41,4% 72,8% 70,5% 43,9% 39,6%

Profitability & Financial Ratios

Return on Equity (ROE) 11,8% 7,1% 3,0% 2,9% 6,4% 7,2%

Adj. Return on Core Tier 1 Capital (ROTE) 22,5% 10,6% 5,3% 5,0% 10,9% 12,0%

Return on Capital Invested (ROCI) 17,1% 9,0% 4,8% 4,8% 11,0% 11,0%

Return on RWAs (RORWA) 1,2% 0,7% 0,4% 0,4% 0,9% 1,0%

Revenues/RWAs 5,4% 5,3% 6,2% 5,8% 5,8% 5,7%Costs/RWAs 3,0% 3,4% 3,5% 3,3% 3,2% 3,0%

Cost-income ratio 55,7% 63,8% 56,3% 57,1% 54,3% 52,4%

Tax Rate 30,8% 26,6% 33,2% 37,0% 36,5% 36,0%

Payout ratio 52,7% 0,0% 34,1% 42,6% 31,7% 34,3%

Leverage (RWAs on Core Tier 1 Capital) 17,2 15,5 13,1 11,9 11,7 11,6

Solvency Ratios

Core Tier 1 ratio 5,8% 6,5% 7,6% 8,4% 8,6% 8,6%

Tier 1 ratio 6,5% 7,2% 8,6% 9,4% 9,5% 9,4%

Total capital ratio 10,1% 11,4% 12,0% 12,6% 12,6% 12,3%

Risk weighted assets (bn) 558,6 512,5 452,4 469,7 494,1 531,7 5,5%

Other Key Data

AUA+AUM+AUC (bn) 386 339 332 339 352 366 3,3%

Assets under management (bn) 305 167 176 183 192 202 4,8%AUM/(AUA+AUM+AUC) 79% 49% 53% 54% 55% 55%

Employees 159.949 163.991 155.000 151.184 151.700 151.500 -0,8%

Branches 9.714 10.251 9.799 9.550 9.500 9.500 -1,0%

Source: Company data, GBL estimates


12/13




Head of Equities

Ruggero Bottazzi 624/625ruggero.bottazzi@ bleo.it

SalesPaolo Bellingeri 271/292Ruggero Bottazzi 624/625Marco Letizia 365/366Roberto Mozzi 274-275Gianluca Pediconi 544/372

TradersOttavio Bertolero 541Vittorio Ciniselli 294Roberto Mancini 608/609Massimo Misani 392/396Eugenio Tamagni 263/265

Trading deskStefano Brioschi 297Amedeo Cocca 411Silvio Pascali 616Grazia Pecorelli 358/362

Captive & RetailSandro Bassi 351Andrea Capra 350/324Massimo Curti 290/312Danilo Micrani 291/547

Head of Research

Anna Maria Benassi [email protected]

AnalystsAutomotive, Gaming

Laura Pennino [email protected]

BanksAnna Maria Benassi [email protected]

Daniela Miccolis [email protected]

Building Materials, Oil&Gas ServicesFilippo Prini [email protected]

Insurance, Asset Gathering, Real EstateGianantonio Villani [email protected]

Luxury Goods & RetailPaola Pecciarini [email protected]

Media, Holding, Consumer GoodsDaniele Ridolfi [email protected]

Small CapsLaura Pennino [email protected]

Filippo Prini [email protected]

Telecoms, Capital Goods, Small CapsEnrico Coco [email protected]

Utilities, MotorwaysClaudia Introvigne [email protected]

EditorsIlenia Spertini [email protected] Veca [email protected]

TranslatorsSimona Pasero [email protected]

Fiona Claudia Stone [email protected]

AssistantSimona Cerri [email protected]

ContactsPhone: +39 02 72206 + extension

Definition of table items

EPS Earnings adjusted for extraordinaryitems diluted as appropriate

YoY % Year on year growth rateQoQ % Quarter on quarter growth rateDividend/DPS Gross dividend per share

P/E Share price / EPSDividend Yield % Gross dividend per share / Share price

PEG P/E / CAGR EPS 2009-12e

EV/Sales (Market Cap + net debt)/Sales

EV/EBITDA (Market Cap + net debt)/EBITDA

EV/EBIT (Market Cap + net debt)/EBIT

EV/Cap. Employed (Market Cap + net debt)/Cap. EmployedROE % Net Profit / Shareholders EquityROCE % Operating Profit / Capital Employed

Debt/Equity Net Debt / Shareholders EquityFree Cash Flow Yield % Free Cash Flow / Market Cap.

Interest cover EBIT / Net Financial ChargesPay out ratio % Total Dividends/ Net ProfitDebtors rotation (days) Debtors *365 / Net SalesInventories rotation (days) Inventories *365 / Net SalesCreditors rotation (days) Creditors *365 / Operating costs

Sales / Capital employed Net sales / Net Capital employedNFP m Net Financial PositionFree Float % Shares owned by shareholders with 10%, associated with analystshigh conviction

2. BUY12/18-month total expected return > 10%

3. UNDERWEIGHT

12/18-month total expected return between +10% and 10%

4. SELL12/18-month total expected return


13/13




Disclaimers

Members of the Board of Directors of Gruppo Banca Leonardo S.p.A. and/or Group companies are members of Banca Carige S.p.A.s Board of

Directors.

Gruppo Banca Leonardo S.p.A. - Via Broletto 46, 20121 Milan, Italy - Tel. +39 02.72206.1 - Fax +39 02.85465222 - www.bancaleonardo.comThis document has been prepared by Gruppo Banca Leonardo S.p.A. (the Bank), duly authorized by the Bank of Italy on October 1

st1999 and parent

company of the Gruppo Banca Leonardo This report has been prepared using sources believed by the Bank to be reliable and accurate. However, asthe information contained in this report has not been independently verified, no representation or warranty, express or implied, is made as to thefairness, accuracy or completeness of the information and opinions contained in this report and it is not the authors intention to provide, and therecipient may not rely on this report as providing, a complete or comprehensive analysis of the companys financial or trading position or prospects.Without limiting the generality of the foregoing, liability for negligent misstatement in respect of the contents of, or any omission from, this report ishereby expressly excluded. This document does not constitute, or form part of, an offer to sell or an invitation, inducement or solicitation of an offer tobuy, purchase or subscribe for any securities, and neither this document nor anything contained herein, including, without limitation, all projections,estimates and valuations, shall form the basis of or be relied upon in connection with any contract or commitment to subscribe or acquire securities.This document contains projections that present a possible outcome on the basis of the assumptions se t out herein. These represent only one possibleoutcome and are the independent views of the author of this document. These projections are subject to certain risks, uncertainties and assumptionsthat have not been verified and future actual results of the company could differ materially. Reports are distributed by electronic mail and mailexclusively to the Bank's clients. The Research Departments recommendations and research are distributed to Bank's clients. This document hasbeen furnished to you solely for your information. It is not intended for distribution to the press or other media and may not be reproduced orredistributed by mail, facsimile, electronic or computer transmission or by any other means to any other person. By accepting this document you agreeto be bound by the foregoing limitations. Neither this document nor any copy hereof should be taken or transmitted into Canada Australia orJapan or distributed in the United States, Canada, Australia or Japan. This research may be distributed in the United States only to majorinstitutional investors and may not be circulated to any other person in the United States. All transactions by U.S. investors involving securitiesdiscussed in this report must be effected through Capis Institutional Services, Inc, which is a member of the FINRA and duly registered under allapplicable U.S. federal and state laws and regulations. Receipt of this research is not intended, expressly or implicitly, to mean for any U.S. investor todirect commission income to the Bank whatsoever. Any failure to comply with this restriction may constitute a violation of the securities laws of theUnited States, Australia, Canada or Japan. The distribution of this document in other jurisdictions may be restricted by law and persons into whose

possession this document comes should inform themselves about, and observe, any such restrictions. The coverage frequency of each financialinstrument is set out in every report. The Bank intends to cover every financial instrument with the same frequency as the relevant information isdisseminated by the relevant issuer. Any changes of frequency will be notified in compliance with the applicable law and regulations. The informationand opinions in this report are subject to change without notice. Any opinions, projections, estimates and valuations contained in this document areentirely those of the authors. The Bank has adopted internal procedures and organizational models suitable to ensure a clear separation of theResearch Department from all investment services and the independence of financial analysts (the structure hierarchically reports to the Bank's CEO).The internal self-discipline code provides for proper rules of conduct aimed at protecting clients and the market (the Research Department staff is NOTALLOWED to perform any transactions in financial instruments covered by a recommendation during the periods prior to or following therecommendation). The Bank is authorized to perform all investment and additional services, according to Legislative Decree No. 58 of 1998. Therefore,with reference to articles 69quaterand 69quinquiesof CONSOBs Regulation on Issuers no. 11971/1998, the Bank might have a potential interest orconflict of interest with the issuers mentioned herein; conflicts of interests will be d isclosed in each report. The Bank has adopted a Conflicts of InterestPolicy, pursuant to Directive no. 2004/39/EC and CONSOBs Regulation on Intermediaries no. 16190/2007 (the extract of the Policy is available onthe Banks website http://www.bancaleonardo.com).If you are not the intended recipient you must not disclose or use the information in this e-mail in any way. If you received this document in error,please inform us immediately by return e-mail and further, delete this document immediately. We do not guarantee the integrity of any e-mails orattachments to any e-mails and we are not necessarily responsible for any changes made to e-mails by any other person. You may contact us toinquire further of any disclosures with respect to the issuers, if any, mentioned in this research.

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Documents

BL Research Report - Unicredit