"Banks: A Tale of Two Extremes" - Three Times Better-than-Expected Performance on One Hand, Continued Layoffs on the Other

European bank earnings are released, with UniCredit Bank's net profit far exceeding expectations, while announcing a huge dividend, but the overall industry continues to face layoffs.

On Monday, UniCredit Bank, the second-largest bank in Italy, announced its 2023 Q4 earnings, with net profit three times higher than expected, and announced an increase in shareholder returns for 2023 to 8.6 billion euros (9.3 billion US dollars), once again raising the dividend benchmark for European banks.

Subsequently, UniCredit Bank's European stocks surged 10%, reaching the highest point since November 2015. Since CEO Andrea Orcel took office in 2021, the bank's stock price has tripled, leading the gains among European banks.

However, at the same time, the banking industry's wave of layoffs continues, with UniCredit Bank, Société Générale Société anonyme, Deutsche Bank, and Citigroup announcing layoffs in order to improve stock prices and returns.

UniCredit Bank's profit far exceeds expectations, with a dividend of up to 9 billion US dollars

UniCredit Bank's financial report pointed out that benefiting from rising interest rates, the bank's fourth-quarter revenue increased by 4.6% compared to the same period last year, with fourth-quarter net interest income of 3.61 billion euros, better than the estimated 3.46 billion euros.

The net profit for Q4 2023 was 2.81 billion euros, three times higher than analysts' expectations, and the full-year net profit for 2023 reached 9.3 billion US dollars, a year-on-year increase of 53.8%, mainly due to better-than-expected revenue, lower bad debt provisions, and non-operating project profits.

UniCredit Bank stated that it is actively focusing more on fee-based businesses and positioning it as the second profit engine. The ongoing reforms at UniCredit include rebuilding revenue-generating products to develop new services and increase fees.

Since 2021, UniCredit Bank has distributed nearly 18 billion euros through cash dividends and share buybacks, achieving its goal for the end of 2024 one year ahead of schedule. The bank stated in a statement that it will introduce mid-term dividends starting this year and plans to distribute at least 90% of adjusted net profit.

As of the end of December, UniCredit Bank's common equity Tier 1 capital ratio was 15.9%, a key indicator of financial strength. The bank set aside 300 million euros for non-performing loans this quarter, less than half of analysts' expectations.

Looking ahead, UniCredit Bank stated that due to customer demand for higher deposit rates, net interest income will decrease this year, and it is expected that net profit in 2024 will be on par with 2023.

The wave of layoffs in the banking industry continues

As the trend of rising interest rates weakens, global banks are laying off employees to improve stock prices and returns. Société Générale Société anonyme and UniCredit Bank have joined the ranks of layoffs. UBI Banca has intensified its cost-cutting efforts and cut approximately 1,350 positions in the fourth quarter of last year. According to documents released on Monday, the Milan-based bank had a total of 70,752 full-time employees as of the end of December.

Previously, Société Générale announced plans to lay off around 900 employees to save costs, accounting for about 5% of its total headquarters staff. At the same time, Société Générale has committed to reducing expenses by 1.7 billion euros by 2026 and lowering the cost-to-income ratio to below 60% to enhance its capital strength. Following the announcement of the layoffs, Société Générale's European stocks fell slightly, and the bank will release its fourth-quarter earnings report on February 8.

Last week, Deutsche Bank announced plans to lay off as many as 3,500 employees, mainly in back-office departments. Citigroup stated last month that it will cut 20,000 positions, expecting to save as much as $2.5 billion, with overall expenses projected to decrease to a range of $51 billion to $53 billion in the medium term.

A previous article pointed out that data shows the world's 20 largest banks had a minimum of 61,905 job cuts in 2023, with U.S. banks accounting for half of the total.