UniCredit Emerges With Slimmest Capital Margin Among Italy Banks

  • Bank must hold 10% capital ratio for 2016, now has 10.4%
  • Lender should put off dividend plans, Mediobanca analyst says

UniCredit SpA has the smallest capital margin among Italy’s biggest banks, raising questions about Chief Executive Officer Federico Ghizzoni’s ability to stick with his dividend plans.

The European Central Bank instructed UniCredit to maintain a common equity Tier 1 ratio of at least 9.75 percent for next year, after reviewing risks particular to the bank, the Milan-based lender said on Thursday. An additional 25 basis-point buffer for systemically important banks will be applied from January, bringing the minimum ratio to 10 percent. Unicredit’s CET1 ratio, measuring the ability to absorb losses, was 10.4 percent at the end of September.

UniCredit has been cutting jobs, curbing risk and disposing of non-strategic assets to increase profitability and boost capital as record-low interest rates squeeze margins. Chief Executive Officer Federico Ghizzoni, 60, said Italy’s biggest bank will target a CET1 ratio of 11.5 percent by 2018 as he plans to pay out 40 percent of profit as dividends on average through that year.

“If management wants to avoid the risk of raising capital, it should put off dividend payments until a sounder capital buffer is built up,” Andrea Filtri, a London-based analyst at Mediobanca SpA, wrote in a note Friday.

UniCredit’s capital buffer is much narrower than its peers. Intesa Sanpaolo SpA, Italy’s second biggest bank, said last month it was assigned a ratio of 9.5 percent, 390 basis points lower than the 13.4 percent it reported at the end of September. Banca Monte dei Paschi di Siena SpA, Italy’s No. 3 bank, emerged with a buffer of 180 basis points after the ECB assigned it a 10.2 percent target.

“We consider the surplus as rather limited compared to the minimum capital requirements, giving UniCredit limited room for mistakes in an environment where regulatory changes could potentially have a significant impact on the capital base,” Banca IMI SpA analyst Manuela Meroni wrote in a note Friday. “Market fears concerning a potential rights issue may continue to penalize the stock.”

The ECB is asking banks to supplement the minimum capital ratio required of all lenders to allow for differences specific to each company, such as in their individual risk models. So far, the Italian banks are the only lenders under the ECB supervision that have disclosed data.

UniCredit fell as much as 1.5 percent in Milan trading, shares were down 1 percent to 5.07 euros as of 11:15 a.m.

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