(May 7): UniCredit SpA’s first-quarter (1Q) profit topped analysts’ estimates as higher fees and lending income boosted revenue.

Net income at Italy’s second-biggest lender rose 24% to €2.56 billion (RM13.04 billion), beating the average estimate for a profit of €2.12 billion. First-quarter revenue rose more than 7% from a year earlier to €6.37 billion, exceeding the highest forecast in a survey compiled by Bloomberg.

UniCredit said it’s targeting an adjusted profit of more than €8.5 billion for the full year, as higher fees are expected to offset lower net interest income. 

Chief executive officer Andrea Orcel has vowed to keep improving results after posting a record profit last year on the back of higher interest rates and an efficiency drive he’s pursued since taking over in 2021. With the tailwind from rates set to fade, the Italian bank is looking to increase revenue from fee-generating business while keeping asset quality stable.

“We have started the year on an extremely strong footing,” Orcel, who was confirmed for a second term last month, said in a statement on Tuesday.

UniCredit shares have gained 42% this year, one of the best performers among European lenders. The stock has almost quadrupled in value since Orcel took over.

Orcel is looking to boost the contribution of fees to 35% of total revenue this year to counter weaker expected net interest income. The increase would come in particular from the insurance and asset-management businesses, the CEO said in March.

The Milan-based lender plans a total distribution to shareholders this year that’s in line with 2023. It has paid out almost €18 billion in a mix of cash dividends and share buybacks since 2021, meeting a goal set for the end of this year ahead of schedule. 

Following the regulatory and shareholder approval, the €3.1 billion second tranche of the 2023 share buyback programme is expected to start “as soon as possible” following 1Q results, UniCredit said.

With rising valuations for bank stocks making new buybacks less attractive, investors are also looking for any potential takeovers Orcel may be eyeing. A longtime M&A banker, he struck his first large deal as UniCredit CEO last year by agreeing to buy the Greek state’s holding in Alpha Bank and acquiring Alpha’s Romanian unit.

Orcel is still sitting on €10 billion for potential acquisitions, a figure that would be between €6 billion and €7 billion once the Basel III regulations are fully taken into account. UniCredit said on Tuesday that it intends to either deploy or return its excess capital to shareholders no later than 2027.

UniCredit’s common equity tier 1 ratio, a key measure of financial strength, rose to 16.2% at the end of March from 15.9% in December. Orcel has repeatedly said the bank is well positioned for a period of macroeconomic uncertainty, with extra provisions — so-called overlays — against potential losses at about €1.8 billion. 

Operating expenses declined 0.7% from a year earlier, with the cost-to-income ratio improving to 36.2%.