The results for first half of 2010 were influenced by the difficult economic situation and the extreme conditions on the rates markets, which continued to affect revenues negatively. However, this has been counterbalanced by increased fees, an ongoing focus on cost containment, and the first positive results of a series of measures intended to reduce provisions connected to the loan portfolio.
The Retail SBA’s operating profit was affected by changes in operating income – €5,085 million in the first half of 2010, down from the first half of 2009 (-11.5%) – which can be attributed almost exclusively to the sharp contraction in net interest income.
The performance of net interest income was unfavourable, due to the worsening in the market rates situation that brought Euribor to an all-time low (in the first half of 2010, the one-month Euribor recorded an average value of 43 basis points, with an average drop of 93 basis points compared to the first half of 2009). This progressive reduction in market rates has therefore had a negative impact on the Retail SBA’s profits from financial spreads. The reduction is notably due to the Italian portfolio and almost entirely results from the sharp contraction in spreads on deposits. Moreover, the measures to abolish the maximum overdraft commission in Italy as from the second half of 2009 contributed to reducing the net interest income on loans by penalizing the comparison of the first half of 2010 with the same period in the previous year.
On the other hand, in terms of commission, the Retail SBA recorded growth in the first half of 2010 compared to the first half of 2009. This growth was concentrated in Italy and was primarily due to up-front commissions for the sale of financial and bancassurance products.
1 The Introduction lists the main organizational changes and main business lines and legal entities that make up the Retail Strategic Business Area, also
A significant contribution to the growth in commissions was due to the commission for provision of funds which, as of July 2009, in accordance with the “anti-crisis decree,” replaced the previous calculation method commonly known as the “maximum overdraft commission”; in the first half of 2009, this was recorded under net interest income.
Income Statement (€ million)
CHANGE CHANGE 2009 2010 2009 % Q2 Q1 % Q2 RETAIL 0N 'Q1 2010 Operating income 5,085 5,747 - 11.5% 2,536 2,549 - 0.5% 2,860 Operating costs (3,803) (3,924) - 3.1% (1,908) (1,895) + 0.7% (1,973) Operating profit 1,282 1,823 - 29.6% 628 654 - 4.0% 887
Net write-downs on loans (975) (1,016) - 4.1% (452) (522) - 13.4% (523)
Profit before tax 296 670 - 55.8% 173 123 + 41.0% 257
H1 2010
Operating costs of €3,803 million were recorded at the end of June 2010, a reduction of 3.1% compared
to the first half of 2009. This decrease was the combined result of changes in payroll costs and other administrative expenses that benefited from measures initiated some time ago to achieve a structural reduction in costs. Payroll costs were reduced, in particular as a result of the large-scale downsizing of
staff that also continued in the first half of 2010. The number of FTE2 in the Retail SBA as at June 30,
2010, actually fell by 1,232 units (-1.9%) compared to the end of 2009, primarily in Italy and Germany. Other administrative expenses recorded a reduction due to cost containment in the first half of 2010, primarily in Italy, especially in relation to information and communication technology expenses and other running costs.
Staff Numbers
06.30.2010 03.31.2010 12.31.2009 AMOUNT %
RETAIL
Full Time Equivalent 62,595 62,809 63,827 -1,232 - 1.9%
AS AT CHANGE ON DEC '09
In spite of cost containment efforts, the cost/income ratio, as at June 2010, was 74.8%, with operating
profit of €1,282 million, both having worsened compared to the first half of 2009.
Net write-downs on loans of €975 million were recorded in the first half of 2010, a reduction compared
to H1 2009 (-4.1%). This improvement is evident in all countries and customer segments. The only portfolio where the trend is in the opposite direction is Poland, which accounts for 6% of the overall Retail SBA. However, comparing quarters brings to light a significant improvement. A reduction was recorded in Q2 2010 compared to the values recorded in Q1 (-13.4%), especially in Italy, driven by the improvements recorded in the small business and consumer lending portfolio. In terms of credit quality, the total
annualized cost of risk of the Retail SBA stabilized at a value of 112 basis points at the end of June
2010.
In the first half of 2010, the Retail SBA recorded profit before tax of €296 million, down from €670 million of the first half of 2009 (-55.8%), while in the Q2 2010 recorded €173 million with a strong increase compared to the previous quarter (+41.0%) mainly thanks to the reduction of the net write-downs on loans.
At the end of June 2010, the Retail SBA has made a total of approximately €173 billion customer loans, with a reduction of €1.2 billion in H1 compared to December 2009 (-0.7%), concentrated in the 1Q. This decrease was concentrated in Italy and primarily concerned the stock of mortgages held by UniCredit Family Financing Bank.
The Retail SBA’s customer deposit stock, including deposits and securities in issue, totaled approximately €240 billion at the end of June 2010, down €5.3 billion compared to December 2009 (- 2.2%), concentrated in 1Q. After factoring in adjustments in relation to the bonds used by UniCredit Family Financing Bank (intended to finance the stock of mortgages and personal loans originating from the commercial banks), the actual decrease in deposits was €4 billion. This reduction is primarily due to customer deposits in Italy (especially the fall in deposits from Retail Italy Network and Fineco customers). The Retail SBA recorded an RWA value of €75 billion at the end of June 2010, slightly up from the value recorded at the end of December June 2009 (+0,3%). This increase was primarily due to the Austrian portfolio and was the result of the credit portfolio exposure to volatility of foreign exchange rate offset by the passing to advanced calculation methods for operative risks in Italy.
Balance Sheet (€ million)
06.30.2010 03.31.2010 12.31.2009 AMOUNT %
RETAIL
Loans to customers 173,840 173,786 175,029 -1,188 - 0.7% Customer deposits (incl. Securities in issue) 239,874 239,469 245,208 -5,334 - 2.2% Total RWA 75,237 76,195 75,014 223 + 0.3% RWA for Credit Risk 61,337 61,257 60,168 1,169 + 1.9%
CHANGE ON DEC '09 AMOUNTS AS AT
Breakdown of loans by country and deposits (€ million)
DEPOSITS FROM CUSTOMERS
CHANGE CHANGE 06.30.2010 12.31.2009 % 06.30.2010 12.31.2009 % RETAIL Italy 113,093 114,547 - 1.3% 175,145 181,179 - 3.3% Germany 33,107 33,878 - 2.3% 30,432 30,065 + 1.2% Austria 19,923 19,182 + 3.9% 22,444 21,926 + 2.4% Poland 7,718 7,422 + 4.0% 11,853 12,038 - 1.5% Total 173,840 175,029 - 0.7% 239,874 245,208 - 2.2%
AND DEBT SECURITIES IN ISSUE LOANS
TO CUSTOMERS
Key Ratios and Indicators
2010 2009 AMOUNT %
RETAIL
EVA (€ million) (153) 182 -334 - 184.2%
Absorbed Capital (€ million) 5,373 5,358 14 + 0.3%
RARORAC -5.69% 6.78% n.s.
Operating Income/RWA (avg) 13.44% 14.27% -83bp
Cost/Income 74.8% 68.3% n.s.
Cost of Risk 1.12% 1.11% 1bp