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Italy's UniCredit to boost investor returns as it beats forecasts

By Valentina Za
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Italy's UniCredit to boost investor returns as it beats forecasts

FILE PHOTO: The Unicredit bank headquarters is seen in Milan

By Valentina Za

MILAN (Reuters) - Italy's top bank UniCredit <CRDI.MI> met its full-year goals after posting a better-than-expected fourth quarter on Thursday and said it aimed to boost investor returns now that most of its turnaround was complete.

UniCredit has undergone a major restructuring in the past three years under French boss Jean Pierre Mustier, who has slashed costs, dumped bad debts and sold assets, shrinking the bank's international presence.

His latest step was a decision in November to pull out of a joint venture in Turkey, which led UniCredit to place on the market 12% of local bank Yapi Kredi <YKBNK.IS>.

After failing to clinch a cross-border merger and acquisition (M&A) deal, Mustier is now focusing on improving shareholder returns through dividends and share buybacks in an attempt to lift the stock, which trades well below UniCredit's book value.

"We prefer share buybacks over M&A any day of the week ... There will no M&A for the duration of our plan," Mustier told analysts.

The bank said it would consider returning 50% of its 2020 underlying profit to investors, reaching a capital distribution threshold it had set for 2023 under a plan unveiled in December.

It will also consider extraordinary investor remuneration after 2020.

Mustier arrived at UniCredit in mid-2016 to address persistent concerns about its capital weakness. He raised 13 billion euros in cash from investors and roughly as much from asset sales.

Pro-forma core capital totalled 13.1% of assets in December, up from three months earlier, leaving an ample buffer for shareholder compensation.

"Management demonstrated a strong track record in executing restructuring," Citi analysts said.

UniCredit confirmed its 2020 targets.

After halving its original stake in Yapi to 20% with Wednesday's placement, UniCredit said it would keep it unchanged for 2020 and book a negative 0.8 billion euro impact from the transaction in the first quarter.

The bank's 2023 profit forecast does not include any contribution from Yapi, Mustier said.

The initial reduction of the Yapi stake, together with writedowns of software and other intangible assets, led UniCredit to book 1.2 billion euros in one-off costs in the October-December period.

The bank also brought forward 1 billion euros in planned loan writedowns, leading to a quarterly loss of 835 million euros.

Analysts polled by the bank had expected on average a 1.1 billion euro loss on revenues of 4.65 billion euros.

Revenues came in at 4.9 billion euros, up 3.4% year-on-year despite a 7% drop in the net interest income which was more than offset by higher fees and income from trading.

Adjusted for one-off items, net profit in the full year hit the bank's target of 4.7 billion euros.

(Reporting by Valentina Za; Editing by James Mackenzie and Edmund Blair)