UniCredit Slips on Report of ECB Concern Over Dividend Plan

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UniCredit Slips on Report of ECB Concern Over Dividend Plan
Credit: © Reuters.

By Geoffrey Smith 

Investing.com -- UniCredit (BIT: CRDI ) stock fell on Monday after a report suggesting that the European Central Bank is resisting its plans to pay out more to shareholders.

The Financial Times reported that the bank and its lead supervisor had had a tense exchange of correspondence over UniCredit's capital plans and over its perceived foot-dragging in leaving the Russian market, a key source of revenue in recent years. 

The news is a reminder of the extreme conservatism of the ECB at a time when the Eurozone economy is poised to slip into recession, potentially triggering a new wave of loan defaults. UniCredit's accounts suggest it is one of the best capitalized banks in the region, with a core tier 1 capital ratio (a key measure of financial strength) of 15.41% at the end of the last quarter. 

UniCredit has recovered smartly in recent years from a Eurozone crisis that badly hit its home market in Italy and led to a decade of ultra-low interest rates that hurt its profitability across the rest of the region. Under its former Chief Executive Jean Pierre Mustier, it had slowly reduced its non-performing loan book and accumulated capital to the point where it was able to announce a multi-billion dividend and buyback program - only for the ECB to hit it with a sector-wide suspension of such payouts due to the Covid-19 pandemic.  

As the pandemic has eased and interest rates have risen, UniCredit has gone from strength to strength - now under the management of UBS veteran Andrea Orcel. In the first nine months of the year it generated a record €4.0 billion (€1=$0.9983) in profit, setting aside €1.2 billion for the 2022 dividend.

The ECB had approved the second part of a €2.6 billion payout to UniCredit shareholders in September, taking this year's total payout to €3.75 billion, but the FT's sources said the process had not been easy, with Orcel insisting that the bank's figures were good enough proof of its soundness to make further discussion with the supervisory unnecessary.

Meanwhile, the bank continues to earn money in Russia, even though many of its rivals and western businesses have pulled out of the country either on principle or in response to business difficulties created by the invasion of Ukraine. 

In contrast to Societe Generale (EPA: SOGN ), which took a €3 billion charge to sell its Russian operation back to its previous owner Interros Holdings soon after Russia invaded Ukraine, UniCredit has launched a more leisurely sale process, canvassing potential buyers from various emerging markets, the FT said.   

By 09:02 ET (14:02 GMT), UniCredit stock was down 1.7% in Milan, having earlier fallen as much as 3%, making it briefly the worst-performing bank stock in Europe. 

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