UniCredit builds profit on improved capital base

MILAN (Reuters) - Net profit at UNICREDIT (UCG.IT), Italy's biggest bank by assets, soared above forecasts in the first quarter, helped by hefty trading gains on its own bonds as well as improved profitability in its recession-hit Italian home market.

UniCredit reported net profit of 914 million euros ($1.18 bln), above the bank's analysts' consensus of 805 million euros, signaling it was starting to turn the corner after shoring up its capital base in January via a 7.5 billion euro cash call.

After coming close to a bank liquidity freeze in the final part of last year, UniCredit is keen to leave behind a poor 2011, in which it booked a 9.2 billion euro loss on big asset writedowns, scrapped its dividend and announced 6,150 job cuts.

"UniCredit's very successful capital increase has given us a rock-solid balance sheet which allows us to confidently face the current environment," Chief Executive Federico Ghizzoni said.

Gains worth 447 million euros from the buyback of its own securities pushed Unicredit's bottom line up 12 percent from a year earlier. But even stripped of one-off positives, net profit was still nearly double that of the previous quarter.

"These results are to be seen as positive given the negative economic environment," said a bank analyst who did not want to be named.

The Core Tier 1 ratio, a closely-watched measure of financial solidity, stood at 10.3 percent at the end of March, against just short of 10 percent at the end of last year.

Traders noted that the bank, which bled some customer money at the end of 2011, has again started to attract funds, increasing deposits by 2 percent in the first quarter from the previous one.

In a sign of renewed market appetite for the Italian bank's debt, UniCredit was able to place 1.5 billion euros of five-year bonds in the quarter, stretching beyond the safety net offered to euro zone banks by a European Central Bank three-year funds facility.

Shares in UniCredit extended gains after the results, rallying more than 5 percent at 1220 GMT, outperforming a 2.4 percent rise in the European banking index <.SX7P>. The stock has fallen 35 percent in the last quarter and 74 percent in the last year.

While cheap ECB funds helped Italian lenders offset a funding squeeze, profitability has remained under pressure and is likely to continue to do so in challenging market conditions.($1 = 0.7733 euros)

(Reporting By Lisa Jucca; Editing by Helen Massy-Beresford)

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