Iran sanctions, Turkish write-down hit UniCredit profit

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The Italian bank UniCredit said Thursday that third-quarter profits dropped 99 percent due to one-off provisions to cover any settlement for alleged U.S. sanctions violations in Iran and a write-down on its Turkish unit.

Net profits fell to 29 million euros ($33 million), from 2.8 billion euros in the same period last year. It put aside 741 million euros mostly to cover any potential settlement with the United States, and recorded an 846 million-euro write-down on its Turkish bank, Yapi Kredi.

CEO Jean Pierre Mustier said U.S. settlement talks were still ongoing, but he expected no significant impact beyond the amount provisioned. UniCredit has been under investigation in the United States since 2012 over whether past operations involving Iranian companies were in breach of U.S. sanctions.

Excluding the provision and other charges, net operating profit rose 24 percent to 1.5 billion euros on strong commercial activity. Net interest income rose by 7.2 percent on higher loan volumes to 2.8 billion euros while fees and commission earnings rose 2.5 percent to 1.6 billion euros. Trading profits were down by more than a quarter to 277 million euros as client activity was lower amid an unfavorable market environment.

Mustier said, not taking into account the one-offs, “we would have had a blow-out quarter and the best for the last 20 years of the bank. We use it to adjust, and put everything behind us and move forward.”

The bank acknowledged a difficult macroeconomic situation, including pressure on Italian government bonds as the government clashes with the European Union over its big spending plans. UniCredit holds 57.9 billion euros in Italian government bonds, about 48 percent of its total sovereign exposure.

Its core Tier-1 ratio, a key measure of a bank’s health, dropped to 12.1 from 13.8 percent last year. The bank lowered its Tier-1 ratio forecast to a range of 11.5 percent to 12 percent, from around 12.5 percent previously. The bank also cut its revenue forecasts to 19.7 billion from 20.1 billion euros.

The bank’s shares closed down 3.8 percent, at 11.35 euros, on the Milan Stock Exchange.

In a demonstration of confidence, the bank announced after markets closed that Mustier would invest 600,000 euros in the bank’s shares and another 600,000 in capital raising instruments, for a total equivalent of his annual gross salary.

“I think it is important on my side to show confidence not only in Unicredit, but also in Italy,” Mustier told investors earlier in the day.

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