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UniCredit has an exceptional quarter as sales dope profits

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Milan (AFP)

UniCredit, the Italian bank which has been at the centre of speculation about consolidation in the European banking sector, said Thursday its net profits rose in the first quarter and it would work on cleaning up its balance sheet.

Net profit jumped by nearly a quarter to 1.38 billion euros ($1.54 billion), beating the analyst consensus.

The net profit was boosted with so-called exceptional items, such as the sale of property assets and releasing of provisions after agreeing last month to pay $1.3 billion it processed payments that violated US sanctions on Iran and other countries.

But ING credit analyst Suvi Platerink Kosonen said "the profit improvement was driven by the cost side as operating cost were down by 4 percent year-on-year and loan loss provisions were percent lower year-on-year."

Revenues slid 3 percent to 4.95 billion due to drop in commissions, but the result was better than analysts had expected.

The bank also raised its ratio of funds available to absorb possible losses, the fully-loaded CET1 ratio, to 12.25 percent from 12.07 percent at the end of last year.

UniCredit confirmed its objectives for the year, in particular revenues of 19.8 billion, net profits of 4.7 billion, and a CET1 ratio of between 12 and 12.5 percent.

"This was the best first quarter results in a decade for the second time in a row, underpinning the success of our current strategic plan," chief executive Jean-Pierre Mustier was quoted as saying in the bank's earnings statement.

The bank also indicated it aimed to work on reducing its non-performing loans and reduce its holdings of Italian government debt.

CMC Market's UK analyst David Madden said "today?s upbeat update might renew speculation about a possible tie-up between Unicredit and Commerzbank".

There has been media speculation that UniCredit could be interested in a tie-up with Commerzbank after the German bank's failed merger with Deutsche Bank.

When Mustier took over the reins at UniCredit in 2016 he launched a vast reorganisation plan for the bank. It raised 13 billion from shareholders, sold off assets, cut costs, and eliminated nearly 15,000 jobs as it closed over 900 branch offices.

UniCredit is due to unveil a new strategic plan later this year, but the reduction of its stake in online bank and trader Finecobank has already raised questions about which direction the lender intends to go.

"We want to understand the logic behind the sale of the Fineco stake, a gem which has brought us extremely high profits," said Riccardo Colombani, head of the First Cisl trade union.

"We can't wait until December 3 to learn which transformations we should prepare ourselves for," he added.

UniCredit shares were trading 0.1 percent higher nearing midday after having spent most of the morning lower. Milan's FTSE-Mib index was down nearly 0.8 percent.

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