Unicredit gets green light from European authorities paving the way for €13bn fundraise

Oliver Gill
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ITALY-UNICREDIT-BANK
Unicredit chief executive Jean Pierre Mustier (right) with the bank's chairman Giuseppe Vita (Source: Getty)

European authorities have not raised any issues with Unicredit breaching capital ratios after the bank convinced them it is merely a temporary problem and will be solved by its mammoth €13bn (£11bn) rights issue.

Plans for Italy's largest lender to right-size its balance sheet appeared to have been dealt a blow after it revealed this morning it will not meet the capital ratios set by the European Central Bank (ECB) at the end of 2016.

However, sources close to the Unicredit said it had already discussed the anticipated breach with the ECB and relevant regulators. And given the lender's capital raise has already been underwritten by banks, authorities gave Unicredit the green light to plough on with plans.

Unicredit's rights issue as part of a wider business restructuring that includes 14,000 job cuts and annual cost savings of €1.7bn.

Read more: Unicredit shareholders approve Italy's largest ever rights issue

A preliminary document has been released by Unicredit in relation to the fund raise. It highlighted one-off charges of €12.2bn in the fourth quarter of 2016 to provide against bad loans. It was this writedown that tipped the bank over the edge and will cause it to breach ECB limits.

Shares in the lender have fallen over five per cent in trading.

Transform

The equity raise is at the heart of the bank's restructuring – called Transform 2019.

Shareholders gave the green light for the rights issue earlier this month. In December Unicredit revealed it had signed up a number of international heavy-hitting investment banks to underwrite the deal.

Read more: Unicredit tightens costs and axes 14,000 jobs

Italian banks are under pressure from large portfolios of non-performing loans. Many banks have "kicked the can down the road" in the hope improved economic conditions will provide better foundation for them to restructure the loans.

Italy's third largest lender, Monte dei Paschi, is in stasis. It is awaiting a decision from the government on whether it will provide financial assistance after a private sector rescue plan failed in December.

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