What is the future of the Italian bank? Will higher revenues drive profitability and loan growth? Will the political situation impact UniCredit's growth? What about investments in Axyon AI and state-backed loans? Read on for more information. Here are a few things to watch for in the next few years. And read on to learn more about the growth prospects for UniCredit. Here is a quick overview of the next few years for this Italian bank.
Profitability improvement from higher revenues
The Italian banking group's profit has been improving recently, with its common equity Tier 1 ratio of 15.5% as of the third quarter of 2017. Despite a dip in interest income - due to a pandemic lockdown in Italy - the bank has been able to bounce back. Profits from the core lending business were up in the second quarter compared to the same period a year ago, thanks to higher fees and a pick-up in volumes. The company reiterated its cost and revenue targets, a key element to the overall growth of the Italian financial sector.
As a result of the positive macroeconomic outlook, the bank's profitability has improved. The firm has been able to reduce its expected loss from performing loans by 0.39%, and the group has also signed an agreement to sell its 500 million leasing portfolio, which will impact its 2Q17 results. The group's cost-cutting efforts are making progress. Meanwhile, management expects to reach a full rundown of its non-core assets by the end of 2021.
The political situation in Italy could impact the growth of UniCredit
The Italian government is reviewing the benefits of a standalone strategy for the troubled UniCredit group, but this is not an ideal scenario. The bank wants to be exempt from the legal risks and bad loans that accompany such a plan. At the same time, it only wants some of the Monte Dei Paschi assets. Meanwhile, the media in Italy has reported that up to 7,000 jobs could be at stake in the bank's restructuring plans. Regardless, this is an extremely delicate situation for Letta and her team to walk.
However, the company's three-year growth strategy is largely dependent on a sustained eurozone recovery. Additionally, the Italian government has been unwilling to commit any additional funds to UniCredit, which has been in a period of retrenchment. And, given its size and business model, a rocky political situation in Italy could derail Andrea Orcel plans.
Investment in Axyon AI
The UniCredit Group has invested EUR1.3 million in Axyon AI, a startup that uses artificial intelligence (AI) to sift through bank data to find investments that will maximize clients' wealth. In addition to ING and UniCredit, Axyon has several other investors. The startup has recently announced a partnership with Refinitiv, the Financial & Risk division of Thomson Reuters.
The Axyon AI team has completed a EUR1.3 million Series A funding round, which included individual investors and a new investment vehicle. This money will be used to support the company's continued growth and product development. Axyon uses AI to identify investors likely to participate in a syndicated loan and deliver liquidity analysis and market insights directly to financial professionals. The UniCredit Group is the first European financial institution to invest in Axyon AI.
Loan growth from state-backed loans
The state-backed loan growth of the Italian banking sector has benefited the major Italian banks. The upcoming presidential election in Italy presents another potential risk. While Italy has enjoyed a stable political environment under Mario Draghi, the upcoming election could cause pitfalls for the UniCredit group. In addition, weak loan growth could negatively affect UniCredit's net interest income. To address these concerns, Orcel is focusing on bringing the group back into the top tier of European banks.
