Unicredit Stress Test 2021: Mixed Performance

No-moat Unicredit had a mixed performance under the recent European Central Bank stress test. Its 2023 common equity Tier 1 ratio under the adverse scenario of the test came to 9.2%, just above the 9% regulatory minimum it needs to keep paying dividends. Under the adverse scenario, Unicredit’s common equity Tier 1 ratio shrank by 592 basis points from the 15.1% it reported at the end of 2020. Only three other European banks we cover suffered a steeper decline. Credit quality held up well if we compare Unicredit’s operational performance under the base and adverse scenarios. The decrease in Unicredit’s revenue was somewhat higher than its peers. Unicredit’s high cost base does, however, lead to increased operational leverage that magnifies the revenue decline. We maintain our no-moat rating and EUR 11.50 fair value estimate.