UniCredit Has Record Loss on Impairments, Shuts Brokerage

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UniCredit SpA, Italy’s biggest bank, posted a surprise 10.6 billion-euro ($14.5 billion) third-quarter loss after writing down years of acquisitions and said it will close its western European brokerage to rein in costs.

The bank took an impairment charge of 8.7 billion euros, including goodwill writedowns on its investment bank, the purchase of Germany’s HVB Group and businesses in Ukraine and Kazakhstan. Excluding one-time items, the quarterly loss was 474 million euros. Analysts expected profit of 7.4 million euros, according to the average of 12 estimates compiled by Bloomberg.

The loss was the biggest in the bank’s history. The stock slid 6 percent as UniCredit, which said it’s selling as much as 7.5 billion euros of stock to plug the biggest capital shortfall among Italy’s lenders, also scrapped its dividend. The bank plans 7,400 job cuts in Europe through 2015, about five percent of its global staff, to bolster its finances as Europe’s sovereign-debt crisis threatens to engulf Italy.

“They are indicating that they believe the economy is going to get worse and not better,” Ralph Silva, a strategist at Silva Research Network in London, said in a Bloomberg Television interview.

The bank will close its western European equity brokerage and trading unit with immediate effect, according to a person with knowledge of the decision, who declined to be identified before a formal announcement tomorrow.

Brokerage Cuts

“Equity research is a loss-making business,” Chief Executive Officer Federico Ghizzoni told reporters at a press conference. “We are seeking a strategic alliance to give this service in a different manner, without posting losses.”

The job cuts include 900 positions at its corporate and investment bank and 5,200 staff in Italy. People familiar with the matter had said last week that UniCredit may pay a competitor to take over the western European brokerage and keep the eastern European arm.

The equity-research unit covered about 400 companies from Munich, Vienna, Milan and London. The equity-sales business isn’t among the top three in Italy and Germany as ranked by Thomson Extel in its 2010 survey.

Wider spreads on government bonds contributed to a 285 million-euro trading loss, the company said. Loan-loss provisions rose to 1.85 billion euros in the quarter from 1.63 billion euros a year earlier, and revenue declined 11 percent to 5.7 billion euros in the quarter.

Acquisition Spree

UniCredit spent about $60 billion on European takeovers from 2005 to 2008, becoming the sixth-largest bank in the nations sharing the euro at one point. Purchases included Munich-based HVB, Germany’s third-biggest bank. UniCredit purchased Rome-based Capitalia SpA in 2007, just before the start of the credit crisis.

“Corporate and investment banking was the most impacted by the writedowns,” Ghizzoni said. “Our decision to write down the goodwill of several brands and to raise capital will reinforce the bank from both a balance-sheet and capital point of view.”

Besides HVB, other writedowns included Bank Austria and a stake in Mediobanca SpA, he said. UniCredit will release a table with more details of the writedowns in the next few days, Ghizzoni said.

UniCredit plans to wind down 48 billion euros of non-strategic assets in coming years, including commodity divisions in Asia and the U.S., Ghizzoni said.

Return on Equity

UniCredit shares closed 5.1 cents lower at 77.4 cents in Milan trading. The stock has tumbled almost 50 percent in 2011. UniCredit’s board proposed a reverse stock split today that would consolidate shares 10-for-1.

The board said it now targets 1.5 billion euros in savings by 2015, focused on western Europe, as it aims to restore profit to 6.5 billion euros by 2015. The bank is targeting a return on tangible equity of around 12 percent by that year.

UniCredit plans to start its share sale in the first quarter of 2012, subject to approval from the shareholders at a Dec. 15 meeting. The sale is fully underwritten by a group of banks, Ghizzoni told reporters.

“They need about half the money they are asking for,” Silva said of the share sale. “They are taking a very safe perspective toward this. If you can get it, get as much as you can right now, because the economy is not going to recover.”

UniCredit had a 7.4 billion-euro capital shortfall, the European Banking Authority said last month. Lenders that fail to raise capital by a deadline of June will be forced to tap national governments for aid.

Capital Rules

UniCredit said today that regulators have allowed it to count as much as 2.4 billion euros of convertible and subordinated hybrid equity-linked securities known as CASHES as core capital. UniCredit has raised 7 billion euros in the last three years through two capital increases, including a rights offer and a convertible-bond sale.

The lender said the goodwill charges won’t affect UniCredit’s cash and capital positions.

Global coordinators for the rights offer besides UniCredit will be Bank of America Corp. and Mediobanca SpA, according to a term sheet for the sale obtained by Bloomberg. Joint bookrunners are JPMorgan Chase & Co., BNP Paribas SA, Societe Generale SA, Deutsche Bank AG, UBS AG, Credit Suisse Group AG, Banca IMI SpA and HSBC Holdings Plc, while co-bookrunners will be ING Groep NV, Banco Santander SA, Royal Bank of Canada and Royal Bank of Scotland Group Plc, the document shows.

(Updates with writedowns at HVB and other units and adds CEO comments and further job cuts, starting in third paragraph.)
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