UniCredit Potential to Lose US$ 8 Billion in Russia, Buyback Must Be Careful

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UniCredit Potential to Lose US$ 8 Billion in Russia, Buyback Must Be Careful


Italy's second-largest bank UniCredit said the complete elimination of its business in Russia, including cross-border exposure, would cost around 7.4 billion euros ($8.1 billion).

Citing Reuters on Wednesday (9/3), UniCredit, which is one of the European banks most exposed to Russia, said it could still pay its proposed cash dividend for 2021 even in the extreme scenario in which it concentrates its exposure.

That would cut two percentage points off the lead capital ratio, which stood at 15.03% at the end of last year - lowering it to just above 13%.

Provided this key measure of financial strength remains above 13%, UniCredit said it remains committed to buying back its own stake of up to 2.58 billion euros under a strategy announced by new CEO Andrea Orcel in December.

"While we do not consider this extreme scenario as our base case, we are taking a thoughtful and sustainable approach to our distribution," UniCredit said.

UniCredit said it would provide a quarterly update on the impact of up to 200 basis points, and if the major capital hit is smaller than its worst-case scenario, it will use the equivalent amount for share buybacks.


"The buyback (or at least some of it) may now be delayed pending clarity on eventual Russia-related losses," said Jefferies analyst Benjie Creelan-Sandford.

Orcel's promise of payment lifted UniCredit shares to a nearly four-year high of 15.85 euros per share last month, before tensions over Ukraine escalated.

The stock closed up 6% at 9,017 euros on Tuesday, having lost more than 40% from last month's high.

Analysts have warned Russia's exposure is looming over Orcel's payment plan, which in turn is a key element in the former UBS banker's M&A strategy.

Before Russia invaded Ukraine, Orcel was ready to launch a takeover bid for smaller rival Banco BPM in an all-stock deal aimed at capitalizing on the stock price recovery, sources told Reuters.

UniCredit said the cross-border exposure of Russian clients was 4.5 billion euros, after deducting guarantees of about 1 billion euros by export agencies of non-Russian countries.

About 30% of the exposure was to oil and gas companies with sanctioned counterparties accounting for less than 5% of the total.

UniCredit Bank Russia, its local branch and the 14th largest lender in Russia, has risk-weighted assets of 9.4 billion euros at the end of 2021.

"After hedging the foreign exchange, our direct exposure to UniCredit Bank of Russia was reduced to about 1.9 billion euros," he said.


UniCredit also has the potential to incur losses of up to 1 billion euros due to its derivative exposure to Russian banks under an extreme scenario. ($1 = 0.9173 euros)



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