(Bloomberg) -- UniCredit SpA rose to the highest in almost 13 years after the first-quarter profit topped analyst estimates and it raised its guidance for shareholder payouts this year.

UniCredit plans a total distribution in line with last year, when it paid out about €8.6 billion. Adjusted profit for the full year is expected to exceed €8.5 billion, as higher fees help offset lower net interest income. 

Net income in the first quarter rose 24% to €2.56 billion, beating the average estimate for a profit of €2.12 billion. Revenue of €6.37 billion exceeded the highest forecast in a survey compiled by Bloomberg.

Chief Executive Officer Andrea Orcel has vowed to keep improving results after posting a record profit last year on the back of higher interest rates and an efficiency drive he’s pursued since taking over in 2021. With the tailwind from rates set to fade, the Italian bank is looking to increase revenue from fee-generating business while keeping asset quality stable.

“We have started the year on an extremely strong footing,” Orcel, who was confirmed for a second term last month, said in a statement Tuesday. The stock has almost quadrupled in value since Orcel took over.

UniCredit rose 3.1% at 10:09 a.m. in Milan, reaching the highest since August 2011. The shares have gained 46% this year, one of the best performers among European lenders. 

Fees rose 3.3% from a year earlier, though it jumped 16% from the prior three-month period. Net interest income gained 8.5% from a year earlier, while declining from fourth quarter. Operating expenses fell 0.7% from a year earlier, with the cost-to-income ratio improving to 36.2%.

Orcel is looking to boost the contribution of fees to 35% of total revenue this year to counter weaker expected net interest income. The increase would come in particular from the insurance and asset-management businesses, the CEO said in March.

The Milan-based lender has paid out almost €18 billion in a mix of cash dividends and share buybacks since 2021, meeting a goal set for the end of this year ahead of schedule. Following regulatory and shareholder approval, the €3.1 billion second tranche of the 2023 share buyback program is expected to start “as soon as possible,” UniCredit said.

With rising valuations for bank stocks making new buybacks less attractive, investors are also looking for any potential takeovers Orcel may be eying. A longtime M&A banker, he struck his first large deal as UniCredit CEO last year by agreeing to buy the Greek state’s holding in Alpha Bank and acquiring Alpha’s Romanian unit.

Orcel is still sitting on €10 billion for potential acquisitions, a figure that would be between €6 billion and €7 billion once the Basel III regulations are fully taken into account. UniCredit said on Tuesday that it intends to either deploy or return its excess capital to shareholders no later than 2027.

UniCredit’s common equity tier 1 ratio, a key measure of financial strength, rose to 16.2% at the end of March from 15.9% in December. Orcel has repeatedly said the bank is well positioned for a period of macroeconomic uncertainty, with extra provisions — so-called overlays — against potential losses at about €1.8 billion. 

Russia Exposure

UniCredit remains among European lenders with exposure to Russia, more than two years after that country invaded Ukraine. Last month, the European Central Bank indicated it plans to order Raiffeisen Bank International AG to cut its Russian loan book far more than what the Viennese lender had planned. 

Asked whether UniCredit has received a similar request, Orcel said “every single bank in Europe that has any kind of exposure to Russia, has likely received the letter.” He declined to comment on UniCredit specifically.

The bank’s strategy is in line with regulators’ expectations and UniCredit is proceeding with its derisking, Orcel said.

The lender operates in Russia through its AO UniCredit Bank subsidiary, which offers services to corporate and individual clients. It has about 3,100 employees and more than 50 branches. Since the beginning of the war, the Milan-based lender put aside funds against defaults in Russia and wrote down the value of its business there.

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