MILAN (Reuters) – UniCredit on Wednesday raised its financial targets for the year, after posting much stronger than expected first quarter earnings.

Solid results by Italy’s only bank that regulators deem of global systemic relevance are the latest evidence of strength for a sector where a string of failures this year has shaken investors’ confidence.

UniCredit forecast a 2023 profit above 6.5 billion euros ($7.2 billion), improving the guidance it gave earlier this year about broadly matching its 2022 result of 5.2 billion euros.

UniCredit slightly modified its definition of profit under its guidance, but the two numbers remain largely comparable, it said.

Net profit in the first three months came in at 2.06 billion euros, well above an average analyst forecast of 1.3 billion euros in a bank-provided consensus, boosted by a bigger than expected 18% yearly jump in revenues.

UniCredit, which under CEO Andrea Orcel has embarked on one of Europe’s most ambitious capital distribution plans, said it would return 5.75 billion euros or more to shareholders through dividends and buybacks over 2023 results.

Core capital unexpectedly strengthened in the quarter to 16.05% of risk-weighted assets (RWAs), which it cut in the quarter by 3% helping to offset the use of capital to buy back the bank’s own shares to lift returns for investors.

With the euro zone’s official interest rates at a 15-year high, UniCredit said it expected to pocket more than 12.6 billion euros in 2023 from the gap between rates charged to borrowers and those paid to raise money.

Net interest income in the quarter topped analyst expectations rising 43.6% year-on-year to 3.3 billion euros, but net fees also unexpectedly strengthened 10.7% from the previous quarter surpassing forecasts at 2.0 billion euros.

Asked about a 1.6% decline in deposits in the quarter, Orcel told a media call the bank had such a solid liquidity position that it could afford to pursue profitability in managing its deposit base.

He said the portion of interest rate hikes that had been passed through to depositors had barely risen in the quarter to 22% from 20% at the end of last year, and was now projected at 30% in 2023 from 35-40% previously.

Analysts have said the confidence crisis in the sector could increase competition for deposits, hurting banks’ funding costs.

($1 = 0.9071 euros)

(Reporting by Valentina Za, editing by Cristina Carlevaro and Kim Coghill)

By Maggie Fick

LONDON (Reuters) – Positive trial data showing Novo Nordisk’s obesity drug helps save and extend lives, not just lose weight, could propel Europe’s best-performing stock even higher, according to 10 investors and industry analysts interviewed by Reuters.

Demand for the Danish company’s weight-loss treatment Wegovy is soaring in the United States, leading it to significantly raise its full-year profit and sales expectations last month.

But Novo faces challenges in getting broad health insurance coverage from European governments as well as insurers, and the U.S. Medicare health plan for older Americans that classifies weight-loss treatments as lifestyle drugs.

Showing a clear medical benefit in addition to weight loss could change that.

“It doesn’t take a lot of leaps of faith to understand if you lose weight, you will have a lower risk of heart disease,” said Jeff Elliott, lead health care portfolio manager at BMO Global Asset Management, and a Novo shareholder.

“But most insurance companies (…) may need to see that data, to definitively see the correlation between weight loss and improved outcomes.”

Novo launched a large-scale study involving 17,500 patients almost five years ago to assess whether Wegovy reduces the risk of major cardiovascular events like strokes or heart attacks in overweight or obese people with a history of heart disease.

It has said it expects results between June and August, though analysts and investors will be looking for any signals on the outcome when Novo releases quarterly earnings on Thursday.

The company declined to comment for this story citing its quiet period ahead of quarterly results.

Barclays analysts reckon a positive outcome from the study, called SELECT, could boost uptake of Wegovy by a quarter by 2030 if the drug is approved for expanded use for treating cardiovascular conditions.

Investors, including BMO and AllianzGI, said a reduction in the risk of a major cardiovascular event like a stroke of 17% or more would be considered a positive result which would likely boost Novo’s shares.

Less than 15% could put downward pressure on the stock while around 10% would be a major disappointment, some of the investors and analysts said.

A 20% risk reduction could boost the stock to as high as 1,500 Danish crowns ($220), a third higher than its current price, Barclays said, while failure could see it fall to 900.

In an informal poll of six analysts by Reuters, two agreed with Barclays’ prediction that shares could be up by a mid- single-digit percentage if the trial shows a risk reduction of 17%. Four see a more muted reaction, saying they expected shares to rise only by a low-single-digit percentage.

Some said the trial’s importance has been overhyped. “The trial will give important data, but it won’t give all the answers in one go and won’t blow the doors open for reimbursement,” said UBS analyst Michael Leuchten.

GRAPHIC – Novo Nordisk’s share performance

https://fingfx.thomsonreuters.com/gfx/mkt/akveqjoaavr/Novo%202.PNG

$100 BILLION MARKET

The stock’s 140% rally since Wegovy’s U.S. launch in June 2021 may limit the immediate upside for the shares too.

Worth more than 340 billion euros ($372.91 billion), Novo overtook Nestle in March to become the second most valuable company on the pan-European STOXX 600 index after luxury goods group LVMH. Its shares are up more than 20% this year.

Barclays estimates the global market of weight-loss therapies could be worth as much as $100 billion in the next 10 years, with most of the benefit accrued to early leaders, Novo and Eli Lilly.

Booming demand and production issues have caused shortages of Wegovy though, forcing Novo to delay launching the weekly injection in most of Europe.

Even with the medical benefit, investors say the company faces a challenge convincing Europe’s cost-conscious health authorities to pay for the drug. It costs nearly $1,350 a month in the United States.

In Europe, it is only available in Norway and Denmark, where it costs between $160 and $350 per month without reimbursement from private insurers.

The countries’ public health authorities have said they will reconsider their assessments of whether to cover the drug, which they currently do not, after publication of the SELECT trial data.

But in an indication of the hurdles, Denmark’s largest private insurer announced last week it will stop reimbursements from next January.

“What we have seen in Denmark with some providers already coming out and saying ‘we can’t do this for everybody’ will happen elsewhere and will add some volatility,” said Lars Skovgaard Andersen, investment strategist at Danske Bank.

GRAPHIC – Novo Nordisk market value

https://fingfx.thomsonreuters.com/gfx/mkt/zdpxdjqkapx/Novo%20market%20cap.PNG

($1 = 0.9101 euros)

($1 = 6.7970 Danish crowns)

(Reporting by Maggie Fick,; Additional reporting by Nikolaj Skydsgaard in Copenhagen and Helen Reid in London; Editing by Josephine Mason and Emelia Sithole-Matarise)

FRANKFURT (Reuters) -German airline group Deutsche Lufthansa said it expected strong demand for holiday travel this summer to fill seats on its planes and help it reach its full-year targets.

“The continuously strong demand gives us confidence for the coming months,” finance chief Remco Steenbergen said on Wednesday.

Lufthansa said it still expects to post a significant year-on-year improvement in adjusted earnings before interest and tax (EBIT) for the full year 2023.

For the first quarter, it posted an adjusted EBIT loss of 273 million euros ($300.96 million), improved from a 577 million loss in the year-earlier period and broadly in line with analyst consensus for 279 million.

Revenues jumped 40% to 7.02 billion euros in the three months through March, though the figure fell short of consensus for 7.57 billion.

($1 = 0.9071 euros)

(Reporting by Maria Sheahan, Editing by Friederike Heine)

By Lewis Krauskopf, Saqib Iqbal Ahmed and Laura Matthews

NEW YORK (Reuters) – The calm that has prevailed in the U.S. equity market may be starting to snap, as a range of worries bolster the case for investors looking to take profits on a rally that has seen the S&P 500 gain more than 7% this year.

For weeks, U.S. stocks have edged higher while measures of market volatility slid, despite concerns including uncertainty over the health of regional banks, a nearing deadline to raise the U.S. debt ceiling and worries over the impact of the Federal Reserve’s aggressive monetary policy.

Though stocks remain near their 2023 highs, some investors now believe those factors will soon start taking a greater toll, limiting further upside. Front and center are concerns over regional banks, whose shares fell again on Tuesday despite a weekend auction that found a buyer for troubled First Republic Bank.

The market may be “back in the soup on the banking crisis,” said Chuck Carlson, chief executive officer at Horizon Investment Services. “I think that is what jolted the market out of its low volatility environment.”

The S&P 500 fell 1.2% on Tuesday while the Cboe Volatility Index, known as Wall Street’s fear gauge, jumped after logging its lowest close since November 2021 on Friday.

Meanwhile, worries over a potential U.S. default have intensified after the Treasury warned on Monday that the government could run short of cash to pay its bills by June.

And while investors expect the Fed to signal a pause in its monetary policy tightening after raising rates once more on Wednesday, many worry the impact of accumulated rate increases will create more ructions throughout the economy.

With weakness in regional banks and worries over a U.S. default adding near-term pressure, “things could get a little choppy in the near term,” said Seth Hickle, derivatives portfolio manager at Innovative Portfolios.

Hickle believes investors with shorter time horizons should lighten up on stocks and raise cash allocations. Carlson, of Horizon Investment Services, said his firm’s portfolios have lower-than-typical levels of equity exposure, instead holding money market funds and short-term bonds.

“It’s hard for us to come up with a scenario where the market upside is much greater than 3% to 5% from current levels,” Keith Lerner, co-chief investment officer at Truist Advisory Services, wrote in a note on Tuesday.

UNEASY CALM

The gyrations have disturbed a placid period in equities, which over the last week have been helped by better-than-expected earnings for several technology and growth stocks.

April included two weeks without a single daily move of at least 1% in either direction for the S&P 500, according to Willie Delwiche, investment strategist at Hi Mount Research. Over the prior 16 months, there had only been one such week for the benchmark stock index, Delwiche said.

Many investors don’t expect that calm to continue, as a battle over raising the $34 trillion U.S. debt ceiling looms.

Treasury Secretary Janet Yellen warned on Monday that the agency will be unlikely to meet all U.S. government payment obligations “potentially as early as June 1” without action by Congress.

Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald, said some investors on Tuesday were taking options positions designed to protect their portfolios in June and July, a period where many believe equities could be vulnerable to debt-ceiling related volatility.

“People are terribly under-hedged,” said Tym, who has been recommending portfolio options hedges in major exchange-traded funds.

EYES ON THE FED

Much depends on the message Fed Chairman Jerome Powell delivers at the end of Wednesday’s monetary policy meeting.

Futures markets positioning showed investors pricing in an 87% chance that the Fed will raise rates by 25 basis points on Wednesday, according to the CME FedWatch Tool, followed by cuts later in the year – though policymakers have projected borrowing costs remaining at around current levels until year-end.

If investors are right, markets may be in for more gains. In the six rate-hiking cycles since 1984, the S&P 500 has posted an average three-month return of 8% following the peak funds rate, Goldman Sachs strategists wrote.

However, the S&P 500 is already trading well above its valuation at the end of any cycle except the one ending in 2000, when the S&P 500 declined despite a Fed pause, the bank said. Goldman has a year-end target of 4,000 for the index, about 3% below Tuesday’s close.

(Reporting by Lewis Krauskopf and Saqib Iqbal Ahmed and Laura Matthews, additional reporting by Gertrude Chavez-Dreyfuss; Editing by Ira Iosebashvili and Grant McCool)

(This May 2 story has been corrected to attribute 2022 SEC proposal following post-publication review in paragraphs 6 and 7)

By John McCrank

(Reuters) – The U.S. Securities and Exchange Commission will decide on Wednesday whether to adopt new rules for advisors to hedge funds and private equity funds aimed at increasing transparency, competition, and efficiency in the $25-trillion marketplace.

The SEC will vote on a proposal to update so-called Form PF, which was put in place following the financial crisis of 2008-2009 to monitor risks in the private fund sector, to boost the quality of disclosures by large funds about their investment strategies and leverage.

“Since the SEC put in place Form PF 12 years ago, a lot has changed,” SEC Chair Gary Gensler said at a conference held by the Managed Funds Association on Tuesday.

“The proposal’s new transparency would relate to fees, expenses, performance, and side letters,” he said.

The rule changes would require private fund advisers, such as private equity firms and hedge funds, to disclose quarterly details about their fees and expenses, in a bid to shed light on the rapidly growing market sector.

Large hedge fund advisors would also have to inform financial regulators on certain events that may indicate significant stress or otherwise signal for systemic risk and investor harm, which could include significant margin calls of counterparty defaults, based on a 2022 SEC proposal.

An SEC-registered fund adviser, under the proposal, would also have to obtain annual audits for each private fund under management, as well as disclose so-called “fairness opinions” that summarize certain business relationships.

In their annual reports, the advisors would be required to include information relating to their strategies, use of leverage, and clawbacks of a general partner’s performance compensation.

The SEC is also working with the Commodity Futures Trading Commission on another proposal that would, among other things, expand the reporting requirements for large hedge fund advisers.

(Reporting by John McCrank; Editing by Chizu Nomiyama)

By Leika Kihara and Jihoon Lee

INCHEON, South Korea (Reuters) -Japan and South Korea held their first finance leaders’ meeting in seven years on Tuesday and agreed to resume regular dialogue as tensions in the wider region and slowing growth prod them to increase co-operation and mend strained relations.

The resumption of bilateral financial discussions comes ahead of Japanese Prime Minister Fumio Kishida’s planned visit to South Korea on Sunday and Monday for talks with President Yoon Suk Yeol.

It also came as Asian policymakers, gathering for the annual Asian Development Bank (ADB) meeting this week in the South Korean city of Incheon, discussed regional economic challenges and ways to beef up buffers against various shocks.

In a joint statement issued after their meeting on Tuesday, Asian finance leaders warned of risks to the region’s economy and called for countries to stay vigilant to potential spillovers from the recent U.S. and European banking sector turmoil.

“Japan and South Korea are important neighbours that must cooperate to address various challenges surrounding the global economy, as well as the regional and international community,” Japanese Finance Minister Shunichi Suzuki said at the meeting with his South Korean counterpart Choo Kyung-ho.

“As for geo-political challenges, we’re experiencing incidents like North Korea’s nuclear missile development and Russia’s invasion of Ukraine. Japan sees these as unacceptable, and something the two countries must address together,” he said.

Choo said the two countries can strengthen private and government partnerships in high-tech industries such as semiconductors and batteries.

Japan and South Korea will resume regular finance dialogue, likely to be held annually, at “an appropriate timing,” Suzuki told reporters after the bilateral meeting.

Choo is expected to visit Japan this year for another meeting with Suzuki, South Korea’s finance ministry said.

Relations between the two North Asian U.S. allies have been strained in the past over disputes dating to Japan’s 1910-1945 occupation of Korea.

Washington has pressed both countries to resolve these disputes to better counter rising threats from China and North Korea and other regional challenges.

DEFUSING RISKS

Asia’s economy has been a bright spot in the world with the International Monetary Fund (IMF) upgrading this year’s growth forecast for the region thanks to China’s post-COVID rebound.

But the recent failures of three U.S. banks have alarmed policymakers about the possibility of market turbulence as a result of aggressive U.S. interest rate rises.

“The risks Asia faces are smaller than those for other regions because its financial institutions have sufficient buffers, and their exposure to problematic banks is limited,” Bank of Japan Governor Kazuo Ueda told a news conference.

“But policymakers must guard against possible spillovers from uncertainties over U.S. and European economies,” he said.

Building stronger buffers against shocks became a key topic of debate at a finance leaders’ meeting of the ASEAN+3 – which comprises the 10-member Association of Southeast Asian Nations (ASEAN) and Japan, China and South Korea, on Tuesday.

At the meeting, the finance leaders agreed to create a financial facility that allows members to access funds rapidly in the event of shocks such as a pandemic or a natural disaster.

“The crisis may not be purely financial. It could be triggered by a pandemic, which is non-financial or a natural disaster that can create a domino effect,” Indonesian Finance Minister Sri Mulyani Indrawati, co-chair of the meeting, told a news conference.

“So these are all the shocks that are potentially affecting the stability of the economy as well as even triggering a financial crisis,” she said in explaining the need for stronger safeguards against future risks.

(Reporting by Leika Kihara and Jihoon Lee;Editing by Sam Holmes, Shri Navaratnam and Jacqueline Wong)