UniCredit Posts Jumbo Loss on Loan Provisions, Charges

Updated on
  • 13.6 billion euros in losses mainly due to bad loans
  • Share sale under way to repair Italian bank’s finances

UniCredit SpA recorded a fourth-quarter loss of 13.6 billion euros ($14.5 billion) after its latest balance-sheet cleanup, leading to the third annual setback in six years for Italy’s biggest bank.

The results added up to a full-year loss of 11.8 billion euros, prompting the 13 billion-euro share sale now under way to repair its finances.

The cash call is the latest test for Italy’s banks after Banca Monte dei Paschi di Siena SpA resorted to a government bailout in December after failing to raise 5 billion euros. The government subsequently won parliamentary approval to borrow 20 billion euros to prop up lenders saddled with hundreds of billions of dollars in bad debt. 

Chief Executive Officer Jean Pierre Mustier is trying to turn around Italy’s biggest bank through a combination of cost cuts, asset sales and a balance-sheet cleanup. UniCredit offloaded a big chunk of troubled loans at a discount last year, putting a dent in the bank’s capital buffers.

“2016 was a pivotal year for UniCredit,” Mustier said. “We took a number of decisive actions regarding legacy and operational issues to ensure the future success of the group.”

UniCredit pared losses after publishing its earnings to finish the day up 1.4 percent to 12.57 euros, giving the bank a market value of about 14.8 billion euros.

The bank said it has signed agreements with unions in all countries concerned enabling it to proceed with plans to reduce its workforce by 14,000 people by 2019. UniCredit employed 98,500 at the end of the fourth quarter.

“Besides one-offs connected with the business plan implementation, there is an encouraging progression on costs, with all union agreements necessary for the reduction in staff costs now signed,” said Marta Bastoni, an analyst at Bloomberg Intelligence in London. “Non-performing loan coverage is now well ahead of Italian peers.”

UniCredit set aside 9.6 billion euros for bad loans in the three months through December, up from 1.2 billion euros a year earlier, to bring its coverage ratio to 65.6 percent on total lending.

The loss compares with a quarterly profit of 153 million euros a year earlier and includes write-downs on some shareholdings as well as contributions to a national fund for winding down banks. Revenue in the quarter fell 11 percent to 4.22 billion euros on lower fees and income from lending.

UniCredit has struggled to build capital since spending $60 billion on acquisitions over a decade. It also reported annual losses of 9.2 billion euros and about 14 billion euros in 2011 and 2013 respectively -- both after balance-sheet cleanups.

The bank’s fully loaded common equity Tier 1 ratio, a measure of financial strength, fell to 7.54 percent at the end of 2016, following the measures taken to improve the balance sheet.
The ongoing share sale will restore the ratio to 11.15 percent.

(Updates with CEO comments in fifth paragraph, share price.)
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