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Banking

UniCredit not in crisis despite share price tumble, maintains Mustier

Despite UniCredit’s rising profits and deposits, it is suffering a sell-off with the market concerned about its capital strength and exposure to Italian sovereign debt.

One of UniCredit’s senior managers has dismissed the notion that the Italian bank is facing a crisis, despite its share price plunging by more than 30% since July 1. The lender’s high exposure to Italian sovereign debt has made it a target for investors worried about the plight of the eurozone’s third-biggest economy.

But Jean-Pierre Mustier, head of corporate and investment banking at UniCredit, says the firm is “absolutely not” in crisis, stressing that its business remains sound.

“UniCredit is a solid bank with strong customer relationships and a diversified asset base. What is important is the underlying business. We have just communicated our results for the first half of 2011 with some good underlying trends.

HI profits up 100%

Last week, the bank announced that it made a net profit of €1.31 billion in the first half, a year-on-year increase of nearly 100%, beating analysts’ expectations. Customers continue to back the bank with deposits up 4% in the 12 months to the end of June, to reach €406.7 billion. The growth in customer deposits is outstripping the growth in customer loans.

In addition, the bank has covered 85% of its funding needs for 2011, diminishing its vulnerability to the rise in Italian government bond yields.

Even so, UniCredit’s share price continues to struggle, tumbling by more than 7% in the aftermath of the results announcement before recovering some ground. The firm is trading at just 0.5 times its book value.

Mustier says, however, that it’s important for management not to focus too much on the share price’s volatility. “The short-term volatility of the market has to be put to one side,” he says.

“If you just manage the bank following share price movements, you make the wrong decisions. You need to focus on the medium-term strategy and implement it.”

The bank’s shares are currently trading at €1.07. Mustier denies that if they fall below €1 the shares will have breached a psychological barrier. “It’s no more important psychologically than any other level,” he says.

Capital strength

While the main reason behind the recent sell-off is UniCredit’s exposure to Italian sovereign debt – though at about €40 billion, it represents only 5% of the bank’s total assets – analysts have also conveyed concerns about the bank’s capital strength.

UniCredit’s core tier 1 ratio is 9.12%, up more than half a percentage point over the past six months. But that still falls below the 10% level of its biggest domestic rival, Intesa Sanpaolo, whose share price has also suffered from the market turmoil.

Mustier says the bank feels comfortable with its capital position but continues to evaluate it. “We have just reported a core tier 1 ratio of 9.12%.

“With this strong capital base and future retained earnings, we are meeting all regulatory requirements, but of course we are monitoring their evolution with the new SIFI requirements,” he says.

“But in the current environment, it seems, as if the market wants banks to meet certain regulatory ratios sooner than the regulators.”



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