The UniCredit exception


1-year UniCredit  performance at Milano stock exchange, Oct. 3  mid-day, current price: 2.87 EUR0 (median price target suggested by analysts: 5.10 EUR0)


After yesterday’s extraordinary Council meeting and decisions, the title is highly volatile this morning, while all Euro arkets are down, and Milan more than 5% at mid-day; UniCredit is highly volatile: down to -15%, then up to -3% (becoming the best share in Milan, falling -8%). As with their decisions for discouraging speculation, they come late, and exactly at the time markets are discounting that there is ONLY A WALL STREET BAILOUT, but nothing similar in Europe (after the miserable and inconclusive meeting  in Paris last Saturday). Sincerely, UniCredit CEO Mr Profumo has admitted mistakes this morning, in a “mea culpa“.

Emergency Meeting

After its emergency meeting, UniCredit said it was cutting its 2008 earnings per share target to 39 European cents, before the €3 billion capital increase, from the previous 52 cents. The bank said the total amount of its capital strengthening measures was €6.6 billion. Also included is the placement of a €3 billion core Tier 1 convertible bond that has mostly already been sold to a group of institutional investors and some core shareholders of the bank.

The overall aim is to strengthen the bank’s capital ratios to 6.7% at the end of 2008 from previous 6.2% under so-called Basel II international capital requirements.

“Finally, management addressed the key problem which is capital,” said Marcello Zanardo, a banking analyst with Keefe, Bruyette & Woods Ltd. “This should have been addressed earlier, and it comes at the expense of management credibility.”

Source: wsj, Oct.6 –

See also ft: UniCredit seeks to raise €6.6bn – 09:10, today Monday, Oct. 6


UniCredit: not any specific deep crisis, but  MAINLY (NOT ONLY) a general one

While the credit crunch storm is hitting hard even the more robust European banking system, here is how the current share crisis of Unicredit is seen from Wall Street and London.

In brief, the fact that even such a robust, large bank, unexposed to subcrime toxic products, as UniCredit has been under speculative attack this week, is: 

a) a symptom of the wide diffusion of the subcrime virus: now the credit crunch is at full work (a financial accelerator with a negative sign), therefore the entire banking system is  hit, and consequently its clients as well  (Main Street);

b) as the WSJ notes below (please note that at mid September that Journal, as well as most analysts and economists, discovered we were in one of the worst recessions in history, although they didn’t understand much of it yet), the recession started in 08Q2 in Germany  (a core UniCredit business area) and spreading from there into East Europe (the major area of UniCredit expansion):

c) finally, UniCredit had some minor financial unbalances due to its high growth, aso illustrated by the wsj: no reason for a crisis or panic (wrongly and stupidly, some people in Italy thought they  better retire their deposits: my deposits are there and I have no doubt) – except that the credit-finance crisis is general, and  every minor imperfection looks like bigger.

d) THE UniCredit PARADOX (see Lex), in a moment of catastrophe’  of capitalism and globalisation, is that the bank is a target just because it’s the leader in the late (e.g., compared to Spain) internationalisation of the Italian credit industry.

e) Our suggestion is: BUY. But we are not the only ones suspecting that someone is buying already, and that an undervalued UniCredit creates appetites among competitors. Analysts suggest: 1st buy, 2nd hold. 

LEX, ft:


Published: September 30 2008 09:33 | Last updated: September 30 2008 23:01

“Welcome to the first truly European bank,” UniCredit’s website proudly proclaims. But the only Italian bank to break the national mould and spread its wings well beyond its Milan headquarters, getting half of its revenues outside Italy, is now paying the price. In today’s climate, being a global bank is to be on a hiding to nothing. UniCredit’s share price has collapsed to 10-year lows and trading this week has been suspended several times for excessive losses. Hedge funds, prevented from short selling in the UK and other markets, may well be having a field day, although questions about UniCredit run deeper.

One of these is UniCredit’s exposure to retail banking in Germany, where it controls HVB and has been roped in to help bail out Hypo Real Estate. UniCredit can also expect diminishing returns from its investments in eastern Europe as economies there slow (even if the rest of Europe slows more). Further writedowns are also expected on its investment banking exposure, the largest in Italy. After years of extravagant praise for his bold vision, chief executive Alessandro Profumo is now on the defensive. He uncharacteristically sent a memo to employees to reassure them the bank has no liquidity problems and has no need to raise capital. But perception, not liquidity, is the issue – although the fact that default swaps on UniCredit debt have widened no more than European peers such as Spain’s BBVA shows investor perceptions also vary across markets.


The UniCredit Exception

Credit default swaps of Italy’s biggest bank by assets are among the tightest in Europe, but its stock price has underperformed the DJ STOXX Banks Index by 25% this year.

Unlike many of its European rivals, UniCredit is well funded, with no need to refinance its debt until 2010. That’s reassuring for the bank’s creditors.

One factor putting a strain on the share price is that UniCredit was one of the world’s last few big banks whose shares investors could sell short — until Italy imposed short-selling restrictions of its own late Tuesday.

And even though it has little exposure to subprime-tainted U.S. assets, it is short of capital. To reach a 6.2% Tier 1 capital ratio target by year-end, the bank will have to raise cash, possibly by cutting its dividend or selling stock.

Another problem is that a $75 billion acquisition spree between 2005 and 2007, with buys in Italy, Germany, Ukraine, Kazakhstan and Austria, has resulted in a tenfold jump in the value of goodwill to €21 billion ($30.02 billion). This is straining UniCredit’s balance sheet because banking rules exclude goodwill when it comes to calculating capital adequacy, leaving it with relatively little tangible equity to support its assets.

These new assets are also unlikely to generate the returns UniCredit was expecting, as the euro zone may tip into recession later this year, with the slowdown sure to spill over to Eastern Europe, where the bank is heavily invested.

UniCredit has promised modest asset sales to raise a slice of extra capital. A more convincing move would be to slash its dividend.


Published in: on October 1, 2008 at 7:11 pm  Leave a Comment  
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