UniCredit warns €7bn at risk in ‘extreme scenario’ of Russia unit being wiped out
Italian bank reassures investors it will still fulfil its dividend pledge
UniCredit has warned that it faced losses of about €7bn in an “extreme scenario” whereby its entire Russian business is wiped out, but the Italian bank reassured investors that it should still be able to fulfil a promised dividend this year.
The lender on Wednesday said it had loans of about €7.8bn in its Russian consumer unit and net cross-border exposure to companies of €4.5bn, of which about 5 per cent had been hit by western sanctions after the invasion of Ukraine.
UniCredit also revealed a net derivative exposure to Russian banks of about €300mn and said “the maximum potential loss in the event that the rouble would tend to zero is around €1bn”.
Alongside France’s Société Générale and Austria’s Raiffeisen Bank, UniCredit has the largest exposure to Russia among international lenders. Chief executive Andrea Orcel had been examining an acquisition of Russian government-owned lender Otkritie before the invasion but has since scrapped those plans.
“In the extreme scenario, where the entirety of our maximum exposure . . . is non-recoverable and zeroed”, the bank said its common equity tier 1 ratio, a key capital measure, would fall 2 percentage points to about 13 per cent.
Nevertheless, it recommitted to a €1.2bn cash dividend and a €2.6bn share buyback so long as its CET1 level remained greater than 13 per cent. It added that “whilst we do not consider this extreme scenario as our base case, we are taking a prudent and sustainable approach to our distributions”, and said it would provide quarterly updates on the situation.
Jefferies analyst Benjie Creelan-Sandford said the extra clarity on exposures was a “relief” and “largely reassuring”, but cautioned that capital return plans could be delayed or cancelled if the situation deteriorated or regulators stepped in.
UniCredit’s shares rose 7 per cent after the announcement but remain down 29 per cent this year.
Orcel stopped short of saying his bank was planning an exit from Russia, previously one of its most profitable regions — unlike Italian rival Intesa Sanpaolo, which has put its operations in Russia under strategic review.
Many US and European companies have suspended operations in Russia, fearing the reputational damage from continuing to do business in the country.
Separately, French bank BNP Paribas disclosed €3bn of exposure to Russia and Ukraine and postponed an investor day scheduled for this month. Deutsche Bank is also likely to disclose more detail on its Russian links at its investor update on Thursday, as is Credit Suisse in its annual report released the same day.
SocGen last week flagged a hit to its capital strength if it were stripped of property rights to its banking assets in the country, including its local subsidiary Rosbank. However, it also reaffirmed its intention to pay a dividend.
Citigroup is the most affected of any US lender and risks losing $4bn as a result of the war and sanctions, slightly less than half its total $9.8bn exposure to Russia.