Bloomberg News

Europe Should Boost Bank Financing Measures, UniCredit CEO Says

October 05, 2011

Oct. 6 (Bloomberg) -- The biggest need for European banks from the region’s regulators is help with financing to prevent the debt crisis from worsening, said UniCredit SpA Chief Executive Officer Federico Ghizzoni.

“For the banking sector the focus is more on liquidity rather than capital,” Ghizzoni said in an interview in Milan. “Here we need regulators supporting the market, giving easier access to banks to liquidity.”

The region’s lenders are increasing their reliance on European Central Bank funding after U.S.-based money-market funds pulled back from the region amid concern that Greece, the first euro-area nation to be bailed out last year, may default. At the same time, financial institutions are reluctant to lend to each other, limiting short-term funding options.

“The interbank market is focused on short-term maturities,” said Ghizzoni, 55, the head of Italy’s biggest bank by assets. “It’s difficult to have maturities beyond three months.”

Policy makers around the globe are seeking ways to prevent Europe’s debt crisis from pushing banks to fail and to keep the global economy from slipping into recession. Concern that Italy isn’t doing enough to reduce spending and its debt burden, the second highest in the euro zone after Greece, has pushed the average funding cost of Italian banks to the highest since 2008.

Boost Capital

European Union officials are working on plans to boost bank capital to contain the euro-region’s debt crisis, the International Monetary Fund said yesterday. European banks may need more than 140 billion euros ($186 billion) through a program similar to the U.S. Troubled Asset Relief Program, Morgan Stanley analysts said.

The IMF has offered a slate of options to the EU to revamp the euro area’s main rescue fund, the European Financial Stability Facility, said Antonio Borges, the IMF’s European department head.

In a subsequent statement, Borges retreated from some of these suggestions. “We are not contemplating any market involvement with the EFSF,” he said. “Any alternative lending modalities to what we do now would require a different legal structure and the use of a different source of financing. We have not discussed these issues with our membership.”

Ghizzoni said the EFSF is an important instrument to bolster governance in Europe. “We need strong commitment from the single governments in terms of fiscal policy.”

Strategy

The crisis will lead banks to rethink their business models, focusing on costs, efficiency and productivity, according to the UniCredit CEO. “Banks have to accept that for the next two to three years their revenue will not grow too much,” he said. “Banks need to be leaner, in their structure and more focused on their core business.”

At UniCredit, “what we are doing is to leverage more on lending to get more revenue.”

UniCredit is reviewing its strategy after being the only Italian bank to face the European stress tests without raising capital. The bank, which aims to deliver its new business plan by the end of the year, is cutting costs and risks and is focusing on its core markets to increase profitability.

“We have started to become very selective on the lending side versus the profitability of the relationship as a whole,” Ghizzoni said.

Almost 60 percent of the bank’s revenue comes from outside Italy.

UniCredit, which has already completed its 32 billion-euro funding needs for 2011, said second-quarter quarter profit more than tripled after lower provisions and higher trading income countered losses on holdings of Greek government debt. Net income rose to 511 million euros in the period, while loan-loss provisions dropped 31 percent to 1.18 billion euros.

--Editors: Dan Liefgreen, Frank Connelly

To contact the reporter on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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