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Why UniCredit is a victim of its own success

UniCredit is one of the world’s biggest financial groups but concerns over its capital base have made it vulnerable to panic-stricken investors.

In normal times, if a bank had a core tier 1 capital ratio of 5.7% and total regulatory capital of more than 10% it would draw comment from analysts but it would hardly set the alarm bells ringing. Especially as that bank had made a net profit of €2.9 billion for the first half of the year. These, though, are far from normal times, as UniCredit is finding out to its cost.

Over a three-day period during the last week of September, and following government rescues of several banks across Europe, the Italian firm’s share price fell 24%, at one point trading at its lowest level since December 1997. Concerns mounted that UniCredit would fail to meet its 2008 targets, in particular its core tier 1 ratio goal of 6.2%, and would need a capital injection. The tide turned only after the Italian regulator banned short selling of financial and insurance stocks on October 1.

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