Europe's No 3 bank UniCredit said it could no longer promise 0.66 euros of earnings per share this year because market volatility cast uncertainty over its investment banking, sending shares to 2-1/2 year lows.
"We are not confirming the target," Chief Executive Alessandro Profumo told journalists on Thursday, adding volatility in the investment banking component made it impossible to confirm the indication it had earlier given.
"The market is already significantly discounting this," he said. Financial market turmoil has dampened merger and acquisition activity which contributes to revenues for the investment banking business. Spreads have also widened. Earlier in the day, the bank, worth about $97 billion, reported a 2007 net profit broadly in line with analysts' expectations at 6.566 billion euros ($10.09 billion).
The figure barely changed on a pro-forma basis as the bank integrated Capitalia, bought last year, for the first time. Analysts had been expecting a net profit on average of 6.67 billion euros and the range from 10 analysts in the Reuters poll had ranged from 5.67 billion to 7.54 billion euros.
"For sure the outlook (for the markets and investment banking division) is quite difficult to say ... it can't be very positive," Deputy Chief Executive Sergio Ermotti told analysts in a presentation after publication of the results. Ermotti cited widening credit spreads and a fall-off in investment banking activity. The unit contributes up to 20 percent of revenue and had already seen a drop of 10.6 percent in operating profit in the second half of 2007.
UniCredit's flat 2007 net profits come as medium-sized Italian lender Banca Monte dei Paschi di Siena turned in a 7 percent rise in underlying net for the year to 1.48 billion euros. Its major domestic competitor Intesa Sanpaolo reports next week.
Net profit at Europe's No 2 bank, Spain's Banco Santander, rose 23 percent in 2007, and it has forecast earnings per share up by more than 15 percent this year. UniCredit's earlier statements on exposure to US subprime business and on loan quality had been broadly as expected, allaying concerns it might have to announce large writedowns or losses as some other European banks have done.
UniCredit said its exposure to US subprime-related assets had fallen to 118 million euros by the end of February and its exposure to conduits fell to 5.1 billion euros at the end of February from 10.2 billion euros at end-December.