UniCredit's Capitalia integration
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UniCredit's Capitalia integration

The benefits from the Capitalia integration might take some time to be fully realized – after all it was, arguably, the weakest bank in Italy. Still, the bank’s management believes that the potential gains from the restructuring are tremendous. It has every confidence, given its track record in integrating other financial institutions, that it will succeed in this instance too.

The big concern surrounding the Italian retail business – which is expected to account for 85% of the retail division’s profits this year, according to Roccati at FPK – is asset quality deterioration because of a weakening macroeconomic environment. "The most worrying fact is that Italian retail, a significant growth driver in the past, started to deteriorate as loan provisions rose," says a research report from Keefe, Bruyette & Woods based on UniCredit’s first-half results.

Although non-performing loans were down 3% year to date on a gross basis, analysts are becoming concerned about the increase in watch-list loans and past-due loans.

"Watch-list loans increased by 8% year to date gross, while past-due loans grew by 21% year to date gross," adds the report. "We believe at this stage of the credit cycle, investors should be focusing on these first signals of deterioration."

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