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UniCredit's HVB acquisition

Why UniCredit is a victim of its own success

The main reason why HVB has struggled this year is because of the difficulties faced by the markets and investment banking division. Although the business achieved a healthy pre-tax profit of €356 million in the second quarter, that must be set against a loss of €640 million in the first quarter.

It is within HVB that the investment banking operations of most, though not all, of the legal entities of UniCredit are grouped together, under the UniCredit MIB brand. Not surprisingly then, the performance of the entire MIB division within UniCredit tells a similar story. In the second quarter the business recorded a pre-tax profit of €402 million, much more than analysts expected. In contrast, in the first quarter it posted a loss of €696 million.

The net effect of the markets and investment banking division’s woes on the group has been significant. Tellingly, for the first six months of this year, if the MIB division’s results were stripped out, UniCredit would have achieved growth in net profit of 4.2% year on year pro-forma, instead of a decline of 30.4%.

The problems within the division are largely attributable to its investments in structured credit.

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