UniCredit's board backs CEO after reporting surprise profit

By Silvia Aloisi

MILAN (Reuters) - UniCredit, Italy's biggest bank, reported better than expected results on Tuesday, with the board reiterating its support for Chief Executive Federico Ghizzoni, despite growing disquiet among some influential shareholders.

UniCredit posted a net profit of 153 million euros (119 million pounds) in the fourth quarter, whereas analysts had on average been expecting a loss of 140 million euros according to the bank's own survey of forecasts.

The bank also reported an improvement in closely watched core capital, partly by offering shareholders an option to take the dividend in shares for the third year in a row.

Sources familiar with the matter have said the expectation of another year of scrip dividends was one of the causes of shareholders' discontent with Ghizzoni, with some insiders predicting he may be forced to step down before the bank's mid-April annual shareholder meeting.

One unhappy investor is Leonardo Del Vecchio, who owns just under 2 percent of the bank and said on Monday the bank may need a change of management.

Asked on Tuesday about whether he had felt his job was on the line, Ghizzoni said: "I don't even have time to think about that. I am completely focused on running the bank."

The bank also said in a statement on Tuesday that Ghizzoni had the full confidence of the entire board.

The bank made a net profit in the last three months of 2015 thanks to a rise in net interest income and despite higher than expected loan loss charges.

Unicredit, like domestic rival Intesa Sanpaolo, also reported a reduced total for bad debts - welcome news for industry watchers looking for signs that Italy's economic recovery is starting to benefit its lenders.

However, in a sign of the challenges Ghizzoni faces, the bank's shares still closed down 7.9 percent when the Stoxx Europe 600 banking sector index was down 4 percent and Intesa was down 6 percent.

UniCredit shares are down 45 percent since the beginning of 2016 although all Italian bank shares have suffered.

"European banks have been hit by an indiscriminate sell-off, and I do not see a reason for that to end in the short term," Ghizzoni said. "Finding a shareholder satisfied with how the market is going nowadays is pretty rare."

The bank said its core equity capital solvency ratio rose to 10.94 percent of risk-adjusted assets on a pro-forma basis, assuming a 75 percent take-up of the scrip option on the 0.12 euros dividend for 2015.

The capital ratio is stronger than expected but remains lower than the 13.1 percent reported by Intesa and those of several European peers. However, Ghizzoni has repeatedly denied suggestions that the bank may need an equity capital increase.

The bank's fourth quarter was marked by a number of one-off items, including 214 million euros of restructuring charges linked to a plan to boost earnings involving 18,000 job cuts, a revamp of its Austrian business and the sale of the Ukrainian unit.

(Additional reporting by Gianluca Semeraro and Valentina Za; Editing by Alexander Smith, Greg Mahlich)