Unicredit sees sales of certificates drop as clients move to mutual funds

Unicredit’s revenues, at €4.4 billion, were up 4.4% quarter-on-quarter and down 7.4% year-on-year (YoY), as economic recovery across Western Europe in Q3 2020 led to increased client activity.

At €455m, trading income was up 27.7% QoQ and 10.2% YoY, supported by valuation adjustments including debt/credit value adjustment (DVA/CVA), funding valuation adjustments (FuVA) and hedging desk.

In the third quarter of 2020, investors were more ‘risk-on'

However, the bank led by Jean Pierre Mustier (pictured), reported that client driven trading income excluding valuation adjustments was down 32.9% following a strong Q2 2020 as clients shifted from certificates more towards assets under management (AuM) products, benefitting investment fees, but leading to lower trading income in equities & commodities.

The move from certificates towards AuM products in 3Q 2020, came as Unicredit’s clients became less risk averse. Certificates are often sold with some form of capital protection and – just like buono del tesoro poliennale (BTP, Italian government bonds) – are more sought after by clients when they are in a ‘risk-off’ mode, like in Q2 2020, according to a market source.

“In the third quarter of 2020, investors were more ‘risk-on’,” the source told SRP. “In that case they tend to sell these more conservative products and rather buy products with a higher return expectation, such as mutual funds without capital guarantees, even though they carry higher risk,.”

The slowdown in sales of structured certificates is confirmed by SRP’s own data, which registered 64,055 certificates issued by the bank in the third quarter of 2020, down 25% in issuance compared to Q2 2020, when 84,930 certificates were sold. Third quarter issuance included 56,570 leverage- and 7,079 flow certificates targeted at the German market.

In Italy, Unicredit’s domestic market, the bank issued just 10 certificates worth €316m during Q3 2020 (excluding flow and leverage products). Both sales and issuance decreased compared to the previous quarter (€1.6 billion from 28 products) and also from the prior year quarter (€279m from 16 products).

The bank’s best-selling product in Italy during the quarter, an eight-year capital-protected certificate on the share of ENI, collected a healthy €180m during its subscription period.

In Austria, the bank sold 63 certificates worth €64.5m issued during the quarter, significantly down in issuance but level in sales from the 177 products with sales of €64.2m in Q2 2020 (Q3 2019: €110m from 257 products).

The Czech Republic, where it collected CZK500m (€18.9m) from 17 products, somewhat bucked the trend (Q2 2020: CZK68m from 29 products). Unicredit also sold products in Slovakia, Poland, and Hungary during the quarter.

AuM reached €196 billion, up 2.3% QoQ, thanks to positive AuM sales (+€900m in Q3 2020) and a strong market performance (+€3.6 billion).

The group successfully completed its 2020 total loss-absorbing capacity (TLAC) funding plan and pre-funded €2.1 billion of its 2021 TLAC funding plan through two senior non-preferred issuances.

As of 30 September 2020, the book value of sovereign debt securities amounted to €112.4 billion, of which over the 85% concentrated in eight countries; Italy, with €44.4 billion represented over 39% per cent of the total and about five percent of the group's total assets.

Click the link to read the full Q3 2020 group results and presentation.