Bloomberg News

UniCredit Has to Raise the Most Capital Among Italy’s Banks

October 28, 2011

(Updates with analyst comments in sixth paragraph, shares in 11th.)

Oct. 28 (Bloomberg) -- UniCredit SpA and Banca Monte dei Paschi di Siena SpA, Italy’s biggest and third-largest banks, are among the country’s lenders that must raise the most capital as part of Europe’s plan to end the sovereign debt crisis.

UniCredit will need 7.38 billion euros ($10.5 billion) in additional capital, according to the European Banking Authority, while Monte Paschi will require 3.1 billion euros, the two lenders said in separate statements. Monte Paschi said its total would be reduced to 1.8 billion euros if the bank can include a class of securities as core capital.

Italy’s top five lenders have to boost capital by 14.8 billion euros, according to the EBA. Milan-based Intesa Sanpaolo SpA, the country’s No. 2 bank, doesn’t need additional capital, the regulator said.

Italian lenders are facing higher costs of funding because of concern that the sovereign debt crisis will spread to Italy.

Unione di Banche Italiane ScpA said it needs 1.48 billion euros of capital, while Banco Popolare SC will require 2.8 billion euros.

“Italian banks are the net losers of such an exercise,” analysts at Mediobanca SpA wrote in a note today. “ The Bank of Italy should approve and validate the internal models to let Italian banks play on an even playfield.”

Capital ‘Actions’

“UniCredit is working to identify capital management actions to be put in place” to meet the targets, the bank said in its statement, without adding further details. The buffer would be reduced to 4.4 billion euros if UniCredit can include 3 billion euros of convertible and subordinated hybrid equity- linked securities, known as CASHES, as core capital.

Chief Executive Officer Federico Ghizzoni, who aims to deliver his new business plan by the end of the year, is cutting costs and risks and is focusing on UniCredit’s main markets to increase profitability.

“The numbers given by EBA are not surprising to us,” he told reporters at a conference in Milan. “Considering that the amount doesn’t include CASHES, it is manageable.”

The Milan-based bank, which has already completed its 32 billion-euro funding needs for 2011, said in August that second- 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.

Up to Challenge

UniCredit fell as much as 4.3 percent, and was down 3.4 percent to 90.85 cents at 2:10 p.m. in Milan trading, giving the company a market value of 17.5 billion euros. Intesa declined 1.3 percent to 1.39 euros, Monte Paschi dropped 4.6 percent to 36.12 cents, Banco Popolare plunged 5.7 percent at 1.13 euros and UBI was down 2 percent to 2.93 euros.

“Our banks are up to this new challenge,” incoming European Central Bank President Mario Draghi said in a speech. “We are fully confident that, as in the past, the banking foundations will shoulder their share of responsibility.”

Regulators are demanding banks raise capital to strengthen their resilience after they agreed to losses on Greek bond holdings to help rescue the country. Greek, Spanish and Italian lenders were the most affected by the decisions taken at the European summit.

Recapitalization

European leaders persuaded bondholders to take 50 percent losses on Greek debt and boosted the firepower of the region’s rescue fund to 1 trillion euros to try to stop the crisis from spreading. Europe also struck the accord on bank recapitalization, setting a June 30 deadline for lenders to reach core capital reserves of 9 percent or more after writing down their sovereign-debt holdings.

The EBA estimated capital needs at 106 billion euros for the banks in the region. It gave them until Dec. 25 to submit money-raising plans to national supervisors. Lenders that fail to raise enough capital in the market will first tap national governments, falling back on the European Financial Stability Facility rescue fund only as a last resort.

--Editors: Stephen Taylor, Jon Menon

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

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


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