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UniCredit stunned markets on Monday with a bumper 2023 profit which it said it would distribute entirely to shareholders, and pledged to broadly replicate it this year despite a toughening backdrop.
Shares in Italy's second-biggest bank jumped 10% to a nine-year high after the results and as it also upgraded its outlook for a year in which interest rates are expected to start declining.
"We face the future with optimism," CEO Andrea Orcel told analysts.
UniCredit, he added, has taken steps to counter the fading boost from the gap between lending and deposits rates, which in recent quarters has propelled bank earnings to record highs.
In 2023, UniCredit earned 14 billion euros ($15 billion)from that gap alone, almost twice as much as it made from weakening net fees and up nearly a third from 2022.
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Orcel's upbeat stance contrasts with the more cautious note struck by some other top European banks which have flagged challenges ahead.
UniCredit shares are now at their highest since May 2015, having surged nearly 250% since Orcel, former head of investment banking at UBS, took the reins in April 2021.
"Stock is one of most loved in the sector, but the story continues to overdeliver," Citi analyst Azzurra Guelfi said.
Stated net income in the October-December period was 2.8 billion euros, including a 900 million euro writeback of tax assets, and compared with a consensus forecast provided by UniCredit of 1.2 billion euros.
Revenue confounded forecasts for a quarterly decline, up 4.6% year-on-year. Provisions against loan losses in the fourth quarter were less than half that which analysts had expected.
For 2023, UniCredit reported a net profit of 8.6 billion euros net of tax asset writeups, and said it would allocate all of that to share buybacks and dividends.
It had been guiding for distribution of at least 6.5 billion euros over 2023 on a net profit of 7.25 billion or higher.
UniCredit will then adopt a 90% payout policy, raising the cash part to 40% of income from 35% in 2023 and introducing an interim dividend, it said.
"Beat across the board on the Profit&Loss statement is dwarfed by the umptieth cashback top-up," Mediobanca Securities said. "Ordinary distribution has gone to the moon, now the focus will be on excess capital deployment."
Any use of UniCredit's more than 10 billion euros in excess capital for acquisitions will depend on how a deal would lift valuation metrics for investors versus buying more of the bank's own shares, Orcel said.
The CEO has returned 17.6 billion euros to investors since 2021 - more than UniCredit was worth when he arrived - two-thirds via share buybacks.
By applying a strategy first harnessed by his former employer UBS and focusing on activities that maximise returns in relation to the cash reserves deployed to support them, Orcel has led UniCredit to produce some 27 billion euros in capital.
Core capital stood at 15.9% of risk weighted assets at the end of December, lower than three months earlier due to the shareholder distribution but one of the highest among peers.
