Thursday, September 29 2022

UniCredit recorded a loan loss provision of 1.3 billion euros, one of the largest in Europe, to manage its exposure to Russia.

The Milan-based lender has direct exposure of 1.9 billion euros to Russia, where it has operated since 2005 through UniCredit Bank Russia, which has more than 70 branches and thousands of employees.

The disclosure of the provision came as the Italian bank reported net profit of 1.2 billion euros in the first quarter, up 48% year on year.

In April, UniCredit postponed the publication of its quarterly results for a week to better manage its exposure to Russia. In the worst-case scenario, the Italian lender has warned it could face a loss of 5.3 billion euros if all of its Russian business is wiped out, down from a previous estimate of more than 7 billion euros. This includes derivatives and its €4.5 billion cross-border exposure to Russian clients, net of collateral worth around €1 billion.

Chief Executive Andrea Orcel said the bank’s strong performance in the first three months of the year, which included a 12% increase in revenue outside Russia to 4.8 billion euros, and its strong capital position would help it weather the storm without having to revise its three-year strategy and €16 billion capital distribution plan.

“We maintained a very strong position [capital] ratio of 14%, which includes 1.6 billion euros for the share buyback in 2021, the accumulation of dividends and the negative impact of our exposure to Russia,” he said.

“While challenges undoubtedly await the global economy due to the war in Ukraine and its wider impact, UniCredit enters this period with a resilient and profitable model, prudent capital and existing provisions.”

Last month, Orcel said the bank was looking for ways to leave the country, but the decision was complex and could take time. In a response to shareholders ahead of last month’s annual meeting, UniCredit said an exit from Russia “cannot and should not” happen overnight. Senior bank officials said analysis was ongoing and no decision had yet been made.

The bank said it was confident it could complete the remaining €1 billion share buybacks, but that was subject to developments in Russia.

Before the invasion of Ukraine, UniCredit had considered buying Russian lender Otkritie, but backed out of a potential deal immediately after the outbreak of war.

Last month, Societe Generale, another European bank with heavy exposure to Russia, said it would take a 3.1 billion euro hit as it opted to sell Rosbank to a local counterparty. Austria’s Raiffeisen Bank International also said it was looking for ways to leave the country, where it generates a third of its profits.

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