Italy's UniCredit looks to ring-fence foreign assets

ROME: Italy's biggest bank by assets, UniCredit, plans to review its corporate structure and could ring-fence its foreign operations from its systematically risky home market, two sources said on Tuesday.

The bank is seeking an adviser to help with the review, one of the sources familiar with the matter said, confirming reports in Italian dailies Il Sole 24 Ore and Il Messaggero.

By housing foreign assets under a non-Italian holding company, UniCredit could finance them independently and take advantage of a European regulation that would enable them to be treated separately in the event of a crisis.

Il Sole and Il Messaggero reported that UniCredit aimed to create a German holding company for its foreign assets, mainly covering operations in Germany, Austria, eastern Europe and Turkey. The holding firm would be controlled by the Italian parent but would be independently funded, the newspapers added.

By distancing its foreign assets from Italy's banking sector -- which is struggling with bad loans, a sluggish economy and political instability -- UniCredit could lessen their Italian identity and fund them more cheaply, the sources said.

One banking analyst said UniCredit could be thinking of moving to what is known as a "multiple point of entry" (MPE) model under the European Union's mechanism for dealing with banking crises, the Single Resolution Mechanism.

The MPE model allows different regulators to deal with a banking group's subsidiaries. The mechanism judges this approach more suitable "for banks that have material subsidiaries that are independently operated and funded".

UniCredit, under pressure to boost revenues after focusing on cost cutting in recent years, is working on a new business plan to be unveiled in December.

Funding costs for Italian banks have risen due to a wide spread between Italian and German government bonds, which in turn has eroded the value of their holdings of domestic bonds.

As part of efforts to bolster its financial strength, UniCredit raised about 1.1 billion euros ($1.2 billion) from the sale of a 18.3% stake in online broker Fineco on Monday.

Shares in UniCredit were down 0.5% in late morning trade.