UniCredit Earnings: Impressive Fee Growth and Cost Management but Distributions Disappoint

UniCredit achieved another quarter of record results, extending its three-and-a-half-year growth streak. We commend UniCredit's structural changes in loan loss provisions that have improved loan book quality while maintaining stable margins over the last two years. With one of the industry's lowest cost/income ratios, UniCredit remains highly profitable, even with material excess capital. With net interest margin expansion clearly a thing of the past, attention will shift to other levers UniCredit can pull. We are therefore impressed by the robust fee income growth and sound cost containment evident in the second quarter. Excess capital is a nice problem to have, but there will be more demands from the market that UniCredit speeds up the deployment or return of excess capital. We have slightly raised our fair value estimate to EUR 35 from EUR 33 per share.