UniCredit Should Sell HVB to Increase Capital, Berenberg Says

UniCredit SpA should sell its German unit HVB, Berenberg Bank analysts said, recommending a change in strategy for Italy’s biggest bank to make it easier to manage and regulate.

UniCredit’s performance has trailed that of European banks since the 2008 financial crisis, in part because it faces “punitive regulation” as a lender of system-wide importance, Berenberg analysts led by Eleni Papoula wrote in a note to clients Wednesday.

Share issues in 2010 and 2012 and a new strategy announced in 2014 have not reversed the trend, they said, adding that the bank may need to raise from 24 billion euros ($26 billion) to 41 billion euros of additional loss-absorbing capital.

“Unicredit will continue to underperform, in our view, unless it changes its strategy and simplifies as the environment is no longer supportive of large, cross-border banks,” the analysts said. Nonetheless they raised the bank to buy from sell on the potential benefits from a restructuring.

Chief Executive Officer Federico Ghizzoni is curbing risk, cutting expenses and shedding assets as part of a five-year plan targeting higher income and capital. UniCredit missed analyst estimates in the fourth quarter even though it swung to a profit after huge writedowns in 2013.

Unlike its closest rival Intesa Sanpaolo SA, which in recent years has divested its overseas subsidiaries to focus on Italy, UniCredit has pursued a cross-border expansion strategy, acquiring HVB and Bank Austria in 2005, the analysts said. While the sale of Bank Austria would generate more capital, the sale of HVB is more feasible, even though the German unit runs the group corporate and investment banking division, they said.

“We suggest Unicredit simplifies the group by listing its biggest subsidiary by assets, HVB,” Berenberg said. That would simplify the bank and remove it from the list of banks that have to meet the highest capital requirements.

HVB’s demerger would increase capital by 280 basis points, accorrding to the analysts.

A spokesman at UniCredit said bank doesn’t comment analysts reports.

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