UniCredit cautious on capital returns after outlining exposure to Russia – Update

By Cristina Roca

UniCredit SpA gave details late Tuesday on its exposure to Russia and the maximum hit its capital could take in a worst-case scenario, and signaled that its takeover plans could be affected.

The Italian lender has outlined exposure to Russia for a total of around 7.4 billion euros ($8.06 billion).

In an extreme scenario where all of this maximum exposure becomes unrecoverable, the negative impact on its Common Equity Tier 1 capital ratio at the end of 2021 would amount to around 2 percentage points, UniCredit said. Its CET1 ratio – a measure of capital strength – stood at 15.03% at the end of 2021.

The bank said it does not view this scenario as its base case, but takes a conservative approach to shareholder returns. It confirmed its 2021 dividend and said it would be able to maintain its CET1 ratio above 13% even in the extreme scenario.

“Furthermore, we confirm our intention to execute the share buyback up to the previously agreed amount of 2.58 euros. [billion], provided our 2021 year-end pro forma CET1 remains above 13.0%. An ultimate capital impact of our Russian exposures of less than 200 [basis points] will allow us to use up to an equivalent amount for share buybacks,” UniCredit said.

Bank of America analysts expect the buyback to go ahead as planned if the negative CET 1 impact falls below 113 basis points. The buyback would be executed in part if the hit was between 113 and 200 basis points, and canceled if it lost 200 basis points, they said in a note.

The bank has promised to return at least 16 billion euros to its shareholders by 2024 through a combination of dividends and buybacks. He did not comment on his capital return plans for the coming years, but said he would keep the market informed of developments in his exposure to Russia.

UniCredit’s direct exposure to Russia through its bank in the country is approximately €1.9 billion net of currency hedges.

The bank has an additional 4.5 billion euros in cross-border exposures, almost all of which consists of loans to Russian multinational companies. Loans are mostly in euros or US dollars, he said.

It also has mark-to-market derivative exposure to Russian banks, through which it calculates it could suffer a maximum potential loss of around €1 billion, if the Russian ruble were to trend towards zero.

Write to Cristina Roca at [email protected]

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