The landing of Andrea Orcel as CEO of Unicredit in 2021 was not received with applause. The former UBS generated certain suspicions. First with his salary, 2.5 million euros as an initial fixed salary, making him one of the highest paid European bankers; and then with the first decisions he adopted, among them the reduction of the committee, which went from 27 members to 15. However, in these just over 24 months he has managed to elevate Unicredit to the top positions for profitability within European banking.
It is true that the bank has had the invaluable support of the European Central Bank (ECB). In July of last year, the body chaired by Christine Lagarde adopted a more restrictive monetary policy to control inflation that still shows no signs of correction. This has placed interest rates at 4.25%, their highest level since 2008, giving a strong boost to banking income, but also to net profit.
For Unicredit, net profit shot up 109% in the first six months of the year, to exceed 4.4 billion euros, only behind ING, which shot up its income statement by 133%. This boost was not only the result of the ECB’s rate hike, since it also affects other European entities, such as BNP, which has improved its profits by “only” 47%; but it is also motivated by a reduction in the item allocated to provisions and insolvencies. Thus, the bank run by Orcel has cut them by 91.1% while other entities have increased them, such as Barclays, which has provisioned 162% more.
The confluence of these two parameters has allowed it to improve its ROTE (return on tangible capital) by 834 basis points in the first half of the year, a metric that allows measuring the profitability of a bank, up to 17%, compared to 8.7%. for the same period last year. At the end of December, it was already at 16.8%. However, in 2020, when the pandemic was wreaking havoc in the financial sector and, before the arrival of Orcel, the ROTE closed at -5.4%.
As for other large European banks, Deutsche Bank would be the exception and would see a drop in profitability in the first half of the year with 6.8% compared to the 8% achieved a year earlier despite a favorable environment in interest rates. interests. Instead, BNP Paribas and Barclays, which have exceeded 13%.
BBVA and Bankinter the leaders in profitability of Spanish banks
Spanish banks are also not immune to the effects of the change in the ECB’s monetary policy. Thus, the banks listed within the Ibex 35 have experienced increases in profitability. Bankinter would be the one that has seen ROTE grow the most in the last twelve months. The entity headed by María Dolores Dancausa has experienced an increase of 567 basis points in twelve months, up to 16.4%. A year ago, the profitability was 10.8%.
However, BBVA leads the profitability of Spanish banks, having increased it by 240 basis points to 16.9% at the end of June, while a year ago it stood at 14.5%. This profitability, according to Accuaracy experts, helps the bank cover the cost of capital, which analysts estimate is between 14% and 15%. In addition, with this ROTE, the bank also remains in the top positions in terms of profitability among European banks.
For its part, Banco Santander, which was originally going to have Orcel as CEO, has also seen its profitability improve due to the rise in rates, although in this case, the increase has been 80 basis points to 14, 5%. A year ago, the bank’s ROTE, with José Antonio Álvarez as CEO, stood at 13.7%. Finally, both Caixabank and Banco Sabadell have also boosted their profitability in the first six months of the year to reach double digits, 12% and 10.8% respectively, thanks to the fact that the entity headed by Gonzalo Gortázar improved its profitability by 4 12 points. Basics and Banco Sabadell at 374 basis points. Precisely these entities are exposed to the domestic market, which especially benefit from the rise in the Euribor and its effect on the repricing of mortgage loans.
