Unicredit announces change of strategy

Unicredit, Italy’s largest banking group, has announced a change of business strategy, abandoning its stated ambition of being a universal bank in favour of becoming a purely commercial bank.

The change in strategy was announced as part of a new five-year business plan. Unicredit chief executive Federico Ghizzoni said the aim was to create “purely commercial bank, rather than a universal bank. I firmly believe we will achieve this objective.”

Central to the strategy is a €7.5bn recapitalization package. Market expectations had been for a recapitalization in the range of €6-8bn. Observers have interpreted the package as a radical move, aimed at getting the group back on track after sustaining the heaviest losses in its history. The group reported 3Q losses of €10.6bn.

The recapitalisation should be completed by early next year. The measures include a decision not to pay a dividend this year. These measures should bring the group’s core Tier 1 rating for Basel II to 10.35% and 9% for Basel III.

A spiralling loss of confidence on the markets over the past month has seen traders dumping Unicredit stock, causing its value to slide inexorably. Today, Unicredit lost 6%, hard on the heels of another 6% loss on yesterday’s trading. Earlier in the month, trading in Unicredit was suspended for excess volatility.

Pioneer, Unicredit’s Milan-based asset management division, suffered outflows of more than €2bn in September, according to data from Assogestioni, the Italian fund management association. Pioneer’s difficulties were reflected across the fund management sector, as investors went to cash or withdrew from the market.

Pioneer’s losses have added to Unicredit’s woes, complicating its restructuring efforts. Unicredit’s recent decision after a year-long review process not to sell Pioneer Investments, and instead to go for ‘organic growth’, may be severely tested if market conditions continue to deteriorate.

Unicredit is the only Italian bank that qualifies for the Financial Stability Board’s G-Sifi list of ‘systemically important financial institutions’, drawn up at the request of the G-20 leaders in Seoul last year. As one of the banks that are considered ‘too big to fail’, Unicredit has had to agree to extra capital adequacy rules, in addition to the Basel III requirements.

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