MILAN: UniCredit is studying ways to exit Russia following the invasion of Ukraine, but needs to find a solution for its 4,000 local staff and European companies it serves which are also trying to leave, the Italian bank’s CEO said.
Together with France’s Societe Generale and Austria’s Raiffeisen, UniCredit is among European lenders most exposed to Russia, where it runs the country’s 14th-largest bank.
Its local presence and a sizeable cross-border exposure would entail a loss of 7.4 billion euros ($8 billion) in a worst-case scenario that wiped out its Russian business, it said last week.
“We’re completing an urgent review of the country and we’re considering exit,” CEO Andrea Orcel told the Morgan Stanley European Financial Conference in London.
The former UBS banker said however that leaving was an extremely complex decision which could take time.
UniCredit flags up to $8bn in losses on Russia, prudent on buyback
“It would be quite easy for me to say that we’re leaving Russia. It would be what we all want to do and it is what our minds and bodies demand … but we need to seriously consider the impact … of disentangling a full bank from the country.”
UniCredit’s Russian unit has around 8 billion euros in loans, locally funded by deposits.
The loss in relinquishing the business would be 1.9 billion euros at most. Cross-border and derivatives exposure however add up to another 5.5 billion euros to the bill.
Orcel said tackling the cross-border and derivatives exposure was a matter of “unwinding and netting” and figuring out loan recovery rates at maturity, with clients such as Gazprom currently paying regularly.
The decision on local operations had wider repercussions.
It “has an impact on clients and people and that can be very fast if I find a solution or slower if I need to go in another direction which is what we’re evaluating,” he said.
Stagflation Threat
Fellow Italian heavyweight Intesa Sanpaolo is also reviewing its presence in Russia, where it has financed major projects but has no retail business. Goldman Sachs and JPMorgan Chase are both winding down their operations in Russia, as it is Deutsche Bank.
Less than three months ago, Orcel had looked into swapping UniCredit Russia for a controlling stake in bigger local rival Otkritie, but political risks made him drop the deal.
Orcel said that among UniCredit’s 1,500 corporate clients in Russia some 1,250 were European companies that needed support.
“They expect us to accompany them in the disentanglement,” he said.
Orcel also said that the economic environment had changed because of the war since he presented a new strategy in December. UniCredit was now assuming there would be stagflation as the economy slows down while prices shoot up.
“We’ll have a shock,” he said.
Orcel said that he still believed the bank could achieve cash distribution targets it set out in December but that was dependent on the broader economic environment.
UniCredit has confirmed its 2021 cash dividends in the worst case scenario, but made a proposed share buyback of up to 2.6 billion euro contingent on its core capital staying above 13%.
“Rough cut, if we recover 40 to 50% of our Russian exposure we will be performing the share buyback in full,” he said.
Orcel also cautioned that the crisis had further raised the bar for M&A deals given UniCredit would now need to use its excess capital in part to cushion the shock.
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