UniCredit Said To Be Considering Capital Increase, After Asset Sales
UniCredit (UNCFF) , Italy's sole systemically important bank, is contemplating a capital increase to boost regulatory capital buffers and address the issue of bad loans within its book, according to comments made by chairman Giuseppe Vita to Reuters.
UniCredit could not immediately be reached to confirm the comments, which come after the Italian bank agreed the partial sale of two operating units on Wednesday, raising around €1.1 billion ($1.2 billion). The sales were announced as new CEO Jean-Pierre Mustier took the helm.
"I do not think the ECB will be satisfied with what we have done...but we must give Mustier time to do his work as he has just arrived" Vita is reported to have said on the sidelines of an event in Rome.
Some analysts had previously expected the bank to shun a capital increase since shareholders have already seen the stock fall by 59% so far this year. The bank is besieged, as are domestic peers, by weak profitability and a deep pool of soured loans.
UniCredit shares fell from more than €4.50 in January, to touch lows of €1.75 in early July. But the stock rose by more than 5% Thursday, as investors welcomed the prospect of further action.
According to analysts at Berenberg, UniCredit's 10.8% core Tier One capital ratio makes it the weakest of all Italian banks when it comes to regulatory buffers. They estimated at the end of June that UniCredit needs to raise somewhere between €6 billion and €8 billion in order to boost the ratio by anywhere between 1.5 and 2 percentage points.
Proceeds from the partial sale of Finecobank and Bank Pekao (BKPKF) still leave it far short of Berenberg's estimate of further capital required.
The efficacy of regulatory capital buffers is a timely subject for Italian banks since the European Banking Authority is due to release the results of its latest round of stress tests on July 29. Although these are not pass or fail tests, they could highlight and underline deficiencies in the emergency buffers of Italian banks, which may heighten the volume of calls for a state-backed rescue of the nation's banking system.
Analysts at Barclays Capital said in June that UniCredit faces a choice between improving its profitability or improving its regulatory capital buffers, since any asset sales that boost regulatory capital will have a knock-on effect on future profitability.
"Writing off non-core (bad loans) would lift profitability, but would be too costly," they said, before projecting that the bank will pursue asset disposals as a means of boosting capital.
Berenberg analysts suggest that UniCredit could raise almost all of the capital it needs through a €4 billion rights issue and by disposing of Germany's HVB and its stake in Turkey's Koc Finansal.
However, they warn that a weak banking sector in Italy could mean that UniCredit is required to bail out or take over one or more of its smaller compatriots further down the line, which would only delay UniCredit's restructuring.
Berenberg has a hold rating and a €2.42 price target assigned to UniCredit shares, which currently trade at or close to €2.09.
Barclays has an underweight rating assigned to UniCredit, with the analyst team citing concerns over governance, capital and profitability as being likely to hamper the performance of the shares over the near term. Their price target sits at €2.70, which implies upside of 29% from current levels.