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UniCredit Q1 2017 profit rises 40.6% YoY, beats estimates

After a balance sheet clean-up that resulted in a loss of €11.8 billion in 2016, Italian lender UniCredito Italia Az (OTC: UNCFF) has begun the year well.

Earlier this month, the largest Italian bank by assets reported 2017 first-quarter results that beat analysts’ estimates. So far, after the first-quarter results were reported, the stock has appreciated marginally and is currently trading at $18 levels. Considering the decrease in operating expenses and strong CET1 ratio, we have a bullish view of the stock.

The Milan, Italy-based bank reported a 40.6% increase in the fiscal 2017 net profit to €907 million, from €645 million in the first-quarter of fiscal 2016.

Furthermore, the net profit in the March quarter was well above Thomson Reuters estimates of €612 million. The revenues in the recent quarter increased 3.4% to €4.833 billion, from €4.674 billion in the year-ago quarter.

The corporate and investment banking division’s net profit jumped 19% to €364 million. Region wise, Central and Eastern Europe (CEE) contributed €336 million to UniCredit’s profit. UniCredit also sold €100 million in bad CEE loans in the first-quarter. The bank aims to dispose another €400 million in bad loans in the second-quarter.

Emerging Europe

Net interest income decreased 2.5% y-o-y to €2.564 billion. However, on a q-o-q basis, net interest income increased 6.2%. Net interest margin increased to 1.36% in Q1 2017, from 1.33% in the corresponding quarter last year.

In a bid to cut costs, the bank is aiming to close 944 branches by 2019. In this regard, UniCredit has already achieved 36% of its objective at the end of the first-quarter.

During the first-quarter, loan write-down decreased 12% to €670 million. The fully loaded Common Equity Tier 1 ratio (CET1) increased 1% y-o-y to 11.45% in Q1 2017.

The bank’s Chief Executive Jean Pierre Mustier also confirmed FY17 net interest income outlook of €10.2 billion and CET1 ratio of 12%. Thus, a solid increase in net profit, strong CET1 ratio, and confirmation of FY17 net interest income outlook is expected to keep the stock bullish in the current quarter.

The stock of UniCredit is moving along the ascending trend line, as shown in the image below. The MACD indicator has made a bullish cross over above the zero line. Thus, it would be prudent to buy the stock in dips.

UniCredit Stock Price: May 31st 2017

UniCredit Stock Price: May 31st 2017

Alternatively, we may establish a long position in the binary options market by purchasing a call option having an expiry date between June 8th and June 10th. To ensure higher probability of success, we would enter when the stock of UniCredit trades at about $18 in the cash market.

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