In Fed we trust

14 November 2011 By Peter Thal Larsen Follow @Peter_TL

Given market nerves, the Italian lender’s plan to raise half its market cap from shareholders looks bold. For investors who have hung on this long, pumping in 7.5 bln euros is a bet that Italy can avoid disaster. But UniCredit’s deleveraging plan shows the broader economic risks.

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UniCredit on Nov. 14 unveiled plans to raise 7.5 billion euros through a rights issue. The offering, which is due to take place in early January, will help lift the bank’s core Tier 1 capital ratio under Basel III rules to 9 percent by 2012.
UniCredit expects its core Tier 1 capital ratio will reach 10 percent by 2015.
The Italian lender announced the move as it revealed a net loss of 10.6 billion euros for the third quarter. The figure included an 8.7 billion write-down of goodwill related to previous acquisitions.
UniCredit said it would cut annual costs by 1.5 billion euros by 2015, with the bulk of the cost reductions falling in western Europe. It also plans to put risk-weighted assets worth 48 billion euros – equivalent to 11 percent of its total balance sheet – in a ring-fenced unit which will be run off over time.
UniCredit plans to shrink its investment bank and exit equity sales and trading in western Europe.
The bank said that the plan envisaged it delivering a 12 percent return on tangible equity by 2015. It will not pay a full-year dividend for the current financial year.
By 1545 GMT UniCredit shares were down 6.5 percent at 77.15 cents. As part of its plan, UniCredit intends to carry out a 1-for-10 reverse stock split.

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