Monday, November 14, 2011

UniCredit, facing a run on its deposits, tries to raise capital

According to a Telegraph article by Harry Wilson, UniCredit is going to attempt a massive stock offering as part of its attempt to restructure.

As part of this restructuring, UniCredit is going to write-off the goodwill related to its international bank acquisitions as well as take new losses on its sovereign debt holdings.

Like the Spanish Cajas, why would anyone invest in UniCredit without disclosure of it current asset, liability and off-balance sheet exposures detail?  Without this data, it is impossible to assess the risk or solvency of the bank.

The article also highlights the fact that UniCredit is suffering a modest run on its deposits.  This bank run probably reflects a combination of a loss of confidence that Italy can make good on its deposit guarantees and the question surrounding UniCredit's ongoing solvency.
The bank was hit by new losses on its holdings of sovereign debt and a massive writedown against the value of acquisitions made during the boom years. 
Unicredit said it would raise half its market capitalisation of €15bn in new shares to help it rebuild its capital base and meet new international requirements for loss-bearing capital. 
More than 80pc of the loss resulted from an €8.7bn goodwill writedown taken by UniCredit against "acquisitions made over the past few years". The bank said it had entirely written off goodwill held on its books from purchases made in the Ukraine and Kazakhstan. 
The bank also recognised an €662m writedown against the value of some of its biggest brands, including Germany's HVB and Bank Austria. 
European Banking Authority-led stress tests last month identified an €7.4bn capital shortfall at UniCredit and the bank said it would launch an €7.5bn rights issue to rebuild its core capital ratios. The rights issue will be subject to the approval of a shareholder vote at an extraordinary general meeting on December 15. 
As part of its attempts to conserve capital the bank said it not pay a dividend for 2011, as well as engaging in what it termed "RWA [risk weighted assets] management". 
UniCredit's holding of eurozone sovereign debt, particularly its portfolio of Italian government debt, weighed on its performance. Writedowns of Greek government debt cost the bank €135m in the three months to the end of September. Third-quarter trading losses related to holdings of government bonds were €285m. 
In addition to raising new capital the bank has put in place a turnaround plan to return it to profitability with the aim of achieving a 12pc return on equity by 2015.... 
"The ultimate goal of the plan in Italy is to restore the role of UniCredit as an efficient and innovative leading commercial bank, close to and well entrenched in the territories it serves whilst offering domestic clients full access to a broader international network," said the bank in a statement on Monday....
One of the bank's biggest challenges will be growing its deposit base. The turnaround plan demands that Italian deposits grow between 2010 and 2015 by 15pc. However, in the three months to the end of September total deposits shrank by 3.5pc to €393bn, with Western European desposits declining 5.3pc quarter-on-quarter....
Monday's loss compared to an analysts consensus forecast of an €6bn profit, showing the drastic deterioration in the economic outlook with eurozone lenders looking to build capital and cut risk.

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