UPDATE 4 -UniCredit avoids wave of mergers and acquisitions in Italy and sees opportunities in COVID-19 crisis

* Trade gains, lower costs lead to better profit in the second quarter

* Business operations rebound after containment

* To continue to stock up against a possible COVID-19 blow

* Confirms adj 2021 profit target, sees S2 in line with S1 (update actions, add context and valuation, write to end)

MILAN, Aug.6 (Reuters) – UniCredit has pledged to stay clear of a possible wave of mergers in Italy, saying on Thursday that COVID-19 unrest could help it gain customers in its territory without commitment after having published quarterly results higher than forecasts.

Rival Intesa Sanpaolo is set to overtake UniCredit as Italy’s largest bank after buying UBI Banca this month, in a move seen under pressure on UniCredit boss Jean Pierre Mustier, who has toppled the lender in the past four years but failed to land a referenced cross-border deal.

The Intesa-UBI merger is expected to trigger further consolidation and bankers say UniCredit could face pressure from Rome to buy Monte dei Paschi, the Italian bank’s problem child which is due to be reprivatized next year.

Mustier has ruled out mergers and instead focuses on increasing investor returns to resuscitate the struggling UniCredit share price, a strategy that has encountered a problem due to supervisory demands that banks preserve their capital reserves during the pandemic.

“We should just focus on our business and take advantage of the market disruption brought by COVID to target customers with a very good risk profile,” Mustier told analysts.

The new Intesa-UBI group will supply a fifth of all major banking products in Italy, compared to UniCredit’s 11% market share.

But Mustier said it was crucial to be “extremely disciplined on the risk side” in a market where loan losses continue to rise, especially after debt cancellation programs end.

“I don’t think there is a magical level of market share,” he said, adding that the mergers involved more staff, branches and bad loans, which UniCredit had strived for. to reduce.

He declined to provide an update on the timing of a plan to house UniCredit’s foreign operations in a sub-holding to alleviate the funding needs of Italy’s only global systemically important bank.

A person familiar with the matter told Reuters that the separation of UniCredit’s domestic operations from operations in Austria, Germany and Eastern Europe could prompt Mustier to abandon its “no merger and acquisition” mantra. UniCredit declined to comment.

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In 1458, UniCredit shares were down 5.1% to 7.668 euros after an initial positive reaction to the bank’s earnings, with traders saying Mustier’s comments had delayed any merger and acquisition calls. The stock, which is trading at 0.3x its book value versus 0.6x for Intesa, is languishing well below a 2020 high of 14.442 set in February.

A surge in trading gains and cost cuts helped UniCredit exceed market expectations with second quarter profit of 420 million euros ($ 499 million), down 77% year-on-year former.

The bank recorded € 937 million in loan write-downs, increasing overlay provisions on healthy loans that could go wrong with weakening government support measures.

To maintain its extremely cautious approach to virus losses, UniCredit will recognize more such provisions in the second half of the year, which will lead to an underlying net result – excluding exceptional items – broadly in line with the 368 million euros in the first half. , despite improving revenue trends.

UniCredit has confirmed its underlying profit target for 2021 and Mustier has expressed confidence that the ECB will allow it to resume its policy from 2021 of paying 50% of underlying net profit to shareholders.

On top of that, UniCredit also plans to gradually return excess capital to shareholders, which Citi analysts have estimated at around € 9 billion.

The bank’s core capital strengthened during the quarter to 13.85% of assets from 13.44% in March.

$ 1 = 0.8418 euros Additional reporting by Gianluca Semeraro and Giancarlo Navach in Milan, with Pamela Barbaglia in London Editing by Silvia Aloisi and David Holmes

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