UniCredit Sees $13 Billion Full-Year Loss on Writedowns

  • Bank had additional 1 billion euros of one-time items in 2016
  • UniCredit CET1 ratio below ECB’s requirements on one-off

UniCredit SpA, Italy’s biggest bank, expects an 11.8 billion-euro ($12.6 billion) net loss for 2016 after setting aside more money for bad loans and booking one-time charges related to its turnaround plan.

UniCredit absorbed an additional charge of 1 billion euros -- on top of the 12.2 billion euros announced in December --after booking a bigger writedown on its investment in Italy’s bank rescue vehicle Atlante. It also took losses on some of its shareholdings and made contributions to the national fund for winding down banks, the bank said in a statement after markets closed Monday.

The bank’s stock fell for a fourth consecutive day as the new charge underscored the scope of the problems Chief Executive Officer Jean Pierre Mustier is seeking to address. Mustier, 56, in December outlined a turnaround plan that includes a 13 billion-euro share sale, asset disposals and cost-cutting to restore the bank’s finances and clean up the balance sheet.

“The net loss is likely larger than the market expected,” Ignacio Cerezo, an analyst at UBS Group AG, said in a note to clients. The bank probably set aside more provisions for bad loans than anticipated and “operating trends have likely been weaker than we expected, too.”

UniCredit fell 3 percent to 25.41 euros, the lowest in more than a month, at 1:40 p.m., giving the company a market value of 15.7 billion euros. The bank will release final 2016 results Feb. 9.

Earlier Monday, the lender warned its new business strategy may not convince the European Central Bank. The ECB is stepping up pressure on lenders to offload bad assets, especially in Italy where Banca Monte dei Paschi di Siena SpA resorted to a government bailout in December after failing to raise capital to cover loan losses.

The central bank has asked UniCredit to present a “strategy for deteriorated loans, supported by an operational plan,” the bank said in a filing detailing the capital increase. UniCredit is among a number of ECB-supervised banks having to submit plans for dealing with nonperforming loans by the end of next month.

UniCredit estimated that its phased-in common equity Tier 1 ratio, a measure of financial strength, was about 8 percent at the end of 2016, missing the ECB’s requirements for the year as it warned in December. The lender confirmed its 2019 financial targets, including a CET1 ratio above 12.5 percent.

UniCredit’s stock offer may start early as Feb. 6, as the board will meet Wednesday to decide terms, Il Sole 24 Ore wrote on Sunday. UniCredit was expected to begin the rights issue after fourth-quarter earnings are released.

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