Italy’s UniCredit to miss ECB capital goal ahead of €13 billion rights issue

Italian banks have been weighed down by rising levels of bad debt, estimated to be as high as €360 billion Damien Meyer / AFP

Italy’s biggest bank by assets, UniCredit, said on Monday its end–2016 capital ratios would fall short of European Central Bank requirements, highlighting the importance of its planned €13 billion rights issue.

The bank, which could launch its share sale as early as February 6, said the Common Equity Tier 1 ratio – a key measure of financial strength – would fall to 8 per cent, below a minimum threshold of around 10 per cent.

This is because the bank expects to book €12.2bn in one–off charges in the fourth quarter – a figure already announced to the market – as it cleans up its balance sheet from a mountain of bad loans.

The capital ratio is due to recover above the threshold after the rights issue, the country’s biggest ever, the bank said in a preliminary document for the fundraising.

The document listed a series of risks linked to the transaction, most of which had already been flagged by the lender when it announced the cash call and a strategic plan in December – which included 14,000 job cuts and more than 900 branch closures.

But it lays out the scale of the turnaround that chief executive Jean–Pierre Mustier, appointed in July, is trying to pull off.

Mr Mustier has repeatedly said the share sale and massive balance sheet clean–up had not been requested by regulators.

However, the document published on Monday said the ECB, in its review of the lender, had found several weaknesses, including low capital ratios, weak profitability, a high level of bad loans in Italy, big costs in Germany and Austria and risks linked to its exposure to Turkey and Russia.

The bank also said four ECB inspections were currently underway. The ECB has asked UniCredit, among other banks, to present a plan for its bad loans by February 28.

The bank said the steps announced in December, which include the sale of bad loans worth €17.7bn, should address the issues raised by the ECB, but warned there was a risk they may not be sufficient.

The ECB's banking supervisory chief, Daniele Nouy, told la Repubblica daily in an interview on Monday that Italy had made "scant progress" on its banks' problematic loans, which stand at €356bn in gross terms – or a third of the euro zone's total.

* Reuters

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