But UniCredit Chief Executive Officer Andrea Orcel blew his previous employer, UBS, out of the water in terms of investor reaction. And it is UniCredit that could brighten the mood around other European banks. The Italian lender’s proposal to buy back 3.34 billion euros ($3.62 billion) of stock in 2023 is up from 2.6 billion euros last year and well ahead of the roughly 2 billion euros indicated at its third-quarter results.
UBS aims to buy back more than $5 billion of shares this year, compared with $5.6 billion in 2022. But while UniCredit shares jumped more than 10% Tuesday morning, UBS stock slid 3%.
UniCredit’s confidence that its buyback will get approved suggests that regulators at the European Central Bank are going to be less strict than expected on payouts when banks have good capital and profitability, according to Azzurra Guelfi, analyst at Citigroup. A host of other European lenders are likely to have finished 2022 with billions of euros in excess capital, including BNP Paribas SA, ING Group NV, and Intesa Sanpaolo SpA.
The Italian lender’s results were stronger than expected almost across the board. It is earning more while cutting costs, reducing risk on its balance sheet and becoming more efficient with its capital, while slowly cutting its exposure to Russia.
The outlook for European banks focused on traditional lending may be better for other reasons, too. A big drop in gas prices should ease pressure on consumer budgets and reduce the likelihood of bad loans across the region, according to analysts at Bank of America Corp. At the same time, elevated inflation over the next couple of years should keep interest rates positive, which is much healthier for lending revenue than the sub-zero rates of recent years.
UBS, meanwhile, disappointed in several areas, though results were boosted property revaluations, a business sale and gains on securities and derivatives in its trading books. These added $2.7 billion to 2022 revenue, helping to make up for a $3.4 billion drop in fees and commissions from wealth management, trading, investment banking and other areas.
The bank doesn’t seem to have benefited much at all from the troubles at its rival Credit Suisse Group AG, which suffered nearly $90 billion of asset outflows last October. UBS saw healthy inflows in the final three months of the year, but nothing spectacular. In Asia, where Credit Suisse had a string of private bankers quit, UBS saw net new assets of $3.4 billion, which was little changed from the fourth quarter inflows in 2021 and 2020. UBS’s best results were in Europe, the Middle East and North Africa, but that seems as likely to have been driven by booming oil and gas wealth as by worries over the stability of its rival.
Rising interest rates were very helpful to UBS’s revenue in its global wealth business and its traditional Swiss bank, where net interest income was up more than $1 billion for 2022, or 17%, which was almost as good as US rivals. The good news is that should remain strong in the year ahead. The bad news is there is little sign of risk appetite picking up yet among its rich customers in the US or Asia, who like to trade and borrow money to play in markets, or among the chief executives and investors who generate fees for its investment banking and markets business.
UniCredit shares still trade at a much lower valuation than those of UBS, but their sharply different moves on Tuesday suggest that investors in European banks – like their cousins in the US – are seeing a brighter future for traditional consumer and corporate lending businesses than for the struggling capital markets side, no matter how big the buybacks on offer.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
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