Unicredit surprises with buyback
MILAN: Unicredit cheered investors by saying it would soon start a 1.6 billion euro ($1.7 billion) share buyback put at risk by the Ukraine war, even as it set aside almost as much to cover the cost of quiting Russia.
One of Europe’s banks most exposed to Russia, Unicredit said the 1.3-billion-euro provision booked to first quarter results covered more than 70 per cent of the capital hit it could suffer in a worst-case scenario.
It could now write off in full its Russian unit, were it to be nationalised or sold for free, with no further impact on capital.
“We now have the flexibility to consider and execute the best solution for all our stakeholders,” CEO Andrea Orcel said on Thursday.
The former UBS banker declined to give an update on progress to severe ties with Russia’s AO Unicredit Bank. He said that while it was clear “where our stakeholders want us to go” in relation to Russia, “exit from a country is complicated”.
“We’ll communicate things when they’re executed, not while they’re in progress,” he said, adding he expected to have clarity on the “endgame scenario” for Russia in the second quarter.
In the meantime, Unicredit trimmed its Russian exposure to 7 billion euros, partly through transactions such as asset swaps with non-sanctioned
Russian counterparties that had business in Europe.
Orcel said escalating international sanctions had reduced opportunities for such deals. In two instances, Unicredit had worked “day and night” on accords it had to scrap because sanctions had kicked in 48 hours before signing.
“The window has become quite small,” he said. Assuming a write-off of the Russian unit, a 40 per cent recovery rate on cross-border loans and a 400 million euro hit on derivatives, Unicredit said losses could reach at most 5.2 billion euros shaving 1.28 percentage points off its core capital.
Having borne the bulk of the capital hit in the quarter, Unicredit stuck to a pledge to return at least 16 billion euros in dividends and share buybacks by 2024.