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By Valentina Za
MILAN (Reuters) - UniCredit on Tuesday galvanised investors by pledging to return 5.25 billion euros ($5.69 billion) from its 2022 earnings after posting a record quarterly profit, as CEO Andrea Orcel works to deliver on his ambitious payout plans.
Orcel, who has focused UniCredit on capital light businesses to maximise returns since taking over in early 2021, said he was confident of receiving approval from European Central Bank supervisors before the bank's general meeting in April.
His upbeat tone contrasted the cautious note struck by rival UBS, Orcel's former employer, which also reported on Tuesday, promising to pay out more than $6.7 billion.
Shares in UniCredit soared 12.3% to a near five-year high. UBS fell 2%.
Lenders need ECB approval for share buybacks, which account for almost two thirds of UniCredit's 2022 capital distribution target in addition to cash dividends.
"We've had extensive discussions with the regulators over the distributions and we feel very confident that we will get authorisation to execute them," Orcel told a media briefing.
ECB supervisors have urged the bloc's lenders to prudently preserve capital while higher rates and energy bills cloud the economic outlook.
However, the receding chances of a European recession have boosted banking shares, with investors less wary of regulators hindering generous capital distribution plans.
"We read the strong top-up in shareholder remuneration very positively for UniCredit and for those banks with solid capital, overlays, increasing profitability and clean asset quality," Mediobanca Securities said.
BILLIONS TO SPARE
Orcel, UBS' former investment banking chief, has bet on capital distribution to boost the appeal of his bank's shares, which have traditionally traded at a discount to the sector.
Shareholders, who have been promised more than 16 billion euros in dividends and buybacks by 2024, received 3.75 billion euros from 2021 earnings.
Analysts calculate UniCredit could have at least 6 billion euros to spare after delivering on the 16 billion euro payout goal. Orcel said he would assess later whether to return the excess capital to shareholders or use it for acquisitions.
"If we go back to book (value in terms of share price) they'll use their stock as currency to go take advantage of other people's problems," said Cole Smead at UniCredit investor Smead Capital Management in Phoenix, Arizona.
UniCredit trades roughly at half the value of its tangible book.
Smead, in whose $105 million International Value Fund UniCredit is the biggest banking holding, said the market was underestimating Orcel's ability to continue to drive UniCredit's share price to book value via the buybacks.