UniCredit halfway through massive branch closure programme

The Board of Directors of UniCredit S.p.A. approved 1H17 results.

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After the Board of Directors, Jean Pierre Mustier, Chief Executive Officer of UniCredit S.p.A. commented:

"UniCredit's good 2017 second quarter results confirm the early positive impact of Transform 2019 already seen in Q1. All our teams remain focused on the execution and the successful delivery of the plan. In Q2, as scheduled, we closed the sale of Pekao and in July we finalised the first phase of FINO by divesting a majority stake in a 17.7 billion portfolio of Non Performing Exposures [4]. In particular, Pekao disposal, in addition to our organic earnings generation, had a positive impact of 72 bps on our fully loaded CET1 ratio, which in Q2 stands at 12.80 per cent. We also saw encouraging signs of the roll out of the plan throughout the Group with strengthened commercial activity in all key divisions, resulting in resilient Net Interest Income at 2.7 billion euro, up 3.4 per cent quarter on quarter. Adding strong fee performance up 1.8 per cent quarter on quarter, cost containment and risk discipline, we report a net profit of 1.3 billion euro, excluding Pekao, up 38.4 per cent quarter on quarter".

TRANSFORM 2019 UPDATE

Transform 2019 implementation is on track and delivering tangible results:

Strengthen and optimize capital: the disposals of Bank Pekao and Pioneer were successfully completed, contributing 72 bp and 84 bp of CET1 ratio in 2Q17 and 3Q17, respectively.

Fully loaded CET1 ratio stood at 12.80 per cent in 2Q17 [5]. CET1 ratio is expected to be negatively affected by higher RWA due to business growth and model changes & procyclicality in 2H17 and IFRS9 first time adoption starting in 2018.

Consistently with Transform 2019, the basis of calculation of the dividend payout ratio is net profit excluding the effects of Bank Pekao and Pioneer.

Improve asset quality: ongoing balance sheet de-risking with gross NPE down to €53.0 bn in 2Q17 from €55.3 bn in 1Q17. The risk profile of the Group improved, with the NPE ratio reduced from 11.4 per cent in 1Q17 to 11.0 per cent at the end of June

Gross NPE disposals progressed, amounting to ca. €1.5 bn in 2Q17 and reaching around €1.8 bn in 1H17. Higher sales of NPE are expected in 2H17.

Project FINO is progressing according to plan. UniCredit completed the sale of the majority stake of the FINO portfolio in July 2017. In 2H17 UniCredit will consider the sale of the remaining stake of FINO portfolio, to take it below 20 percent.

Moreover, the expected loss on performing stock is improving from 0.43 per cent in 4Q16 to 0.39 per cent in 2Q17, confirming UniCredit's continuous focus on high quality business. The expected loss on new production reached 0.35 per cent in 2Q17.

Transform operating model: cost cutting initiatives are on track supporting further operating efficiencies.

In 2Q17, the branch closures program progressed and 464 branches were closed since December 2015, corresponding to 49 per cent of 944 branch closures [8]targeted by 2019. Additional 186 branch closures are planned by year end 2017, ahead of plan in
The push on a sustainable lower cost structure is supported by a further reduction of 1,135 FTE [9] during the quarter, amounting to ca. 6,000 lower FTE since December 2015, corresponding to 42 per cent of the 14,000 planned reductions by 2019.

A new IT organisation has been in place since the beginning of 2017, focused on strengthening and upgrading the IT systems infrastructures with key external hires.

Maximize commercial bank value: commercial initiatives are ongoing in all geographies:

- the strategic partnership with Amundi has shown the first positive effects supporting higher Asset under Management sales;

- the new partnership with Apple Pay in Italy, allowing 6 m of UniCredit's cardholders to make payments via the "app" and online, confirming a persistent focus in digitalisation;

- the continued focus on multichannel approach with clients, was underpinned by:

o number of remote sales on targeted sales [10] increased in Italy to 16.9 per cent in 2Q17, up by ca. 50 per cent Y/Y,

o number of online users in CEE increased from 35.9 per cent as of December 2016 to 38.2 per cent as of June 2017, and

o number of mobile users in CEE increased from 20.4 per cent as of December 2016 to 25.8 per cent as of June 2017;

- the end-to-end process redesign is in progress with the release of process reviews on financing receivables, current accounts and credit cards.

UniCredit's fully plugged-in CIB confirmed its strengths as a debt financing house ranking #1 in "Syndicated loans" in Italy, Germany and Austria [10], #2 in "Syndicated Loans in CEE" [11] and #1 in "EMEA All Bonds in Euro" [12] by numbers of deals. In addition synergies have been realised within the Joint Venture CIB-Commercial banking with two Equity Capital Markets deals (IPOs [13]) in Germany.


Adopt a lean but steering Group Corporate Center: operating expenses of GCC decreased by ca. 9 per cent H/H, combined with a reduction of almost 8 per cent of FTE H/H as consequence of ongoing restructuring initiatives. The ratio of GCC costs to Group total costs [14] reduced to 4.0 per cent in 1H17 (4.2 per cent in 1H16) versus a target of 2.9 per cent by 2019.

Moreover, a simplified governance between GCC and the corresponding local functions led to an improvement in the organizational effectiveness with swifter decision making and execution.

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