UniCredit reassures CEE markets as it battens down the hatches

By bne IntelliNews November 15, 2011

bne -

Italian bank UniCredit insisted it will look to continue its leading role in Central and Eastern European markets as it confirmed on Monday reports that it is to seek a massive capital raising and is set to cut thousands of jobs and close its investment banking business as it retreats to a 'classic' banking model.

Revealing a EUR10.6bn third-quarter loss and scrapping its dividend payment for 2011, the bank said it will ask shareholders for EUR7.5bn in new capital and retreat to "core business" reports Reuters.

The bank - one of the biggest operators in CEE - has borne the brunt as Italy has been dragged deeper and deeper into the sovereign debt crisis. UniCredit holds EUR38bn in government bonds and its shares have lost half of their value since the beginning of the year.

Alongside closing its London operation, up to 5,200 jobs will go in its Italian home base. Another 2,000 could go in western Europe, but will be partly offset by new jobs in the east, according to the report. That suggests that the bank will look to expand some retail and corporate banking operations in CEE, despite the huge writedowns provoked by those geographies.

Overall, the third quarter loss included EUR9.8bn of writedowns, of which EUR8.7bn are linked to acquisitions in eastern Europe over the past few years. However, whilst disposal of minor assets in eastern European countries where UniCredit is not the market leader are being considered according to reports, the bank said it has no intention of selling its profitable Turkish and Polish units.

UniCredit currently operates the largest international banking network in CEE with nearly 5,000 branches spread from the Baltics to the Chinese border and includes businesses in the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. It also has investment banking divisions in Poland and Hungary.

CEO Federico Ghizzoni said that by strengthening its capital base, reducing investment banking operations and refocusing on core businesses in Italy, Austria, Germany, Poland and Turkey, UniCredit hopes to ringfence itself from market volatility and stabilize profit.

In Hungary, UniCredit' local unit insisted that its activities will continue unchanged, reports MTI, despite the fact that it has regularly joined others in complaining that the sector faces a hostile regulatory environment in the country. Unicredit Bank Hungary announced last month that it has suspended plans to expand its branch network for the time being, but other developments are continuing uninterrupted, the bank said. The unit added that its capital adequacy ratio - the second-highest in Hungary - is well over the domestic and the international requirements.

Businesses in the former soviet space may not be so lucky however, with goodwill from acquisitions in Ukraine and Kazakhstan entirely written off. The bank also announced writedowns on its Greek bond holdings and on a number of brands, including Germany's HVB and Bank Austria.

However, UniCredit did not provide any details on the fate of any of its local operations, saying only that it will retreat to its core business. "It looks like a kitchen sink job... a massive hatchet job across the business," one analyst remarked to Reuters.

Either way, given the scale of UniCredit's operations in CEE the uncertainty over the fates of the various businesses in CEE will do little to ward off worries that dwindling lending could further slow the region's economies, which are already seen to be losing momentum as the eurozone crisis hits demand for exports.

After the capital increase, to be launched in the first quarter of 2012, UniCredit said it aims to bring its Core Tier 1 ratio above 9% next year, and will target a profit of EUR6.5bn under a new business plan.

Sources familiar with the plan told Reuters at the weekend that UniCredit was also in talks with potential new investors in China and Qatar but these parties had not made any commitment to be part of the deal so far.

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