On November 13, Unicredit reported Q3 results. Net profit of EUR 507m for quarter was more or less in line with the yearly run rate, despite seasonally lower revenues and a one off tick up in loan impairments due to CHF conversion in Croatia. Offsetting the negatives were lower risk charges (including resolution fund and deposit scheme contributions) and lack of further impairments on Ukraine.

The results confirm the turnaround in asset quality, with gross impaired loans down to EUR 80.7bn (EUR 81.7bn in June) and stable coverage at 51%. Capital evolution was strong with the fully loaded CET1 ratio improving to 10.53% from 10.37% in June (excluding the impact of the Pioneer deal, estimated at 25 bps).

Contextually, the group updated its strategic plan, shelving the 13% RoTE target in favour of a less ambitious 11%, which we still consider a good challenge given Unicredit’s starting point (we expect RoTE of 4.9% in 2015). The main levers managements will manoeuvre to achieve it include significant cost cutting in the commercial bank (especially in Germany and Austria) as well as increased capital allocation to the growth businesses (CEE, Asset management and gathering). Our current estimates still point to RoTE remaining slightly below 10% over the plan horizon.

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