Italy Economy Real Time Data Charts

Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Italy related comment. He also maintains a collection of constantly updated Italy economy charts together with short text updates on a Storify dedicated page Italy - Lost in Stagnation?

Wednesday, March 18, 2009

Here We Go Time Gets Near With Unicredit

I have been warning on the parlous position of Italy's Unicredit for some time now (see this initial EU Bonds post, or the earlier history of the Unicredit problem, here, here, here, here, here). Well, today the story took another turn for the worse.

It all started yesterday, when Bloomberg came in with a report about Unicredit's eastern exposure, outlining how a decade long expanison, which saw more than $65 billion of acquisitions in operations stretching from Poland to Kazakhstan is now alarming analysts who forecast that loan defaults in eastern Europe, where the bank focused its growth, are set to balloon. Unicredit's stock is down 76 percent in the past 12 months, the second-biggest decline among Italian banks.

“Eastern Europe is the new bogeyman,” said Massimiliano Romano, an analyst at Concentric Italy in Milan. “UniCredit has subsidiaries in 17 different countries there. We used to see that as diversification, now we see it as a risk.”

Then came the news, again yesterday, that the bank had suffered a 57 percent decline in fourth-quarter profit. Finally, this morning, the bank informed us that they are planning to ask for as much as 4 billion euros in government aid. In fact the profit results were not as bad as some analysts had been forecasting, but then these results are for 2008, which, as the company said in its statement, was still a “very good year” in eastern Europe. 2009 looks set to be quite a lot worse, and 2010? As Unicredit CEO Alessandro Profumo said, the bank is "monitoring countries including Ukraine very closely".

In fact the bank is going to apply for aid in both Austria and Italy, and this is not surprising since according to a statement from the Bank of Italy earlier this week, Italy's national debt climbed to 105.8 percent of gross domestic product at the end of last year, up from 103.5 in December 2007. So the credit rating agencies' patience is already being badly strained, even if the quality of their mercy might not be.

Oh, and just to cap it all, and a very bad day for Unicredit, HVB Group, their German banking unit, announced this morning that they had a loss of 671 million euros last year because of writedowns on investments and higher provisions for risky loans. HVB’s trading results were “severely affected by the extreme market turmoil which intensified in the fourth quarter of 2008,” according to the company statement.

Basically, this is that well known proverbial situation, where Europe's leaders twiddle their thumbs, while Rome, almost literally, burns.


Hans Suter said...

"Then came the news, again yesterday, that the bank had suffered a 57 percent decline in fourth-quarter profit"
I respectfully disagree. The news was that fourth-quarter's decline in profits was less severe than expected. Makes all the difference.

Edward Hugh said...


"The news was that fourth-quarter's decline in profits was less severe than expected. Makes all the difference."

Yep, but Hans, this is inpart because the defaults are slower coming in in the East than some expected (but they are and will come in) and to some extent massaging.

Spain's banks, if you go by the profits, don't look too bad, that is why people domestically don't understand wht the problem is.

The key detail is that Unicredit are applying for a bailout, if things were as rosy as these profits make them appear, then this wouldn't make sense, nor would it be explicable how the Libyan government have suddenly become the main shareholder.

Unicredit is, I'm afraid, going to be the make or break issue for the eurozone (IMHO). Either they will bail it out from Brussels in some way, or the thing will start to disintegrate from the edges. The Italian government simply can't fund a nationalisation of Unicredit.

"I respectfully disagree. "

Of course, that's what blogs are all about.

Anonymous said...

Hello Edward. Looking at your comment from the Czech perspective, I can only say that you are perfectly correct. Some of the Czech banks will start getting major hits in the shape of large corporate defaults sometime during the summer. There will be at least a dozen major developers and construction companies that will fail in the coming months, and Unicredit is likely to be exposed to most of them. I do not think that the Czech Unicredit will fail, they are fairly reasonably capitalised and can bear a lot of strain, but there will be no profits worth mentioning for at least the coming three to four years. The problem with Unicredit (as well as the Czech Raiffeisen) seems to stem from their overexpansion and over-exposure to the real estate business. Unicredit and Raiffeisen came too late and have not been particularly successful in drawing the established clientele from the top three local banks. So they seem to have attracted the higher risk clients, and will now have to bear that risk.

As I say, there is no imminent danger of Czech Unicredit collapsing, but there is no hope of them providing any meaningful support to the whole Unicredit structure.

Anonymous said...

I think you guys are missing the point. The issue underlying "Here we go time..." is that Unicredit's exposure to Eastern Europe is starting to bite. We have barely seen yet what leverage problems that Unicredit has too, so when that starts, Unicredit could be a very dangerous domino to fall. With the Italian government in continuous disarray, and virtually bankrupt itself, this means some very serious consequences. There is nothing here you can spin positively. Although I am Italian, I am the first to admit, that Italian banks are to be highly distrusted, and could start something that could jeopardize all of Europe. Our politicians, and banks, do not give a damn about our country. So why would Czech's, or anyone else support Unicredit, when many Italians don't.

Questo è una preoccupazione grande.
E molto grave, molto, molto grave.

Anonymous said...

It seems that even I was behind the curve. One of the biggest CEE developers (if not the biggest), the Paris-based ORCO SA has effectively failed yesterday.

Although the ORCO holding company has "only" entered the French Procedure de Sauvegarde and has not been declared bankrupt yet, the group (which consists of hundreds of companies and has about EUR 2.5 billion of debt) is likely to collapse.

At the moment, I do not know exactly which banks are exposed to ORCO, but with all likelihood UniCredit will be among them.

So another couple of hundred million may be on its way to the write-off department.