UniCredit shares hit by ECB tensions over capital, Russia

By Valentina Za and Giancarlo Navach

MILAN (Reuters) -Shares in UniCredit fell on Monday hit by a report of tensions between European Central Bank supervisors and the Italian bank over its capital distribution plans and presence in Russia.

Analysts said the report may signal a more restrictive approach to shareholder remuneration by the ECB, in a negative development for the entire sector.

"If confirmed, we would see the news very negatively for UniCredit and for EU banks, as they would convey a tightening of the ECB's approach ... just as profitability is growing," analysts at Mediobanca Securities said.

Shares in UniCredit fell 2% by 1547 GMT while the sector was up 1%, with analysts saying the report by the Financial Times had triggered profit taking on the stock.

Citing people familiar with the matter, the FT said relations between UniCredit and the ECB were tense after a number of letters where the two parties had exchanged different views on Russia and capital distribution.

The ECB declined to comment.

A spokesperson for UniCredit reiterated comments made to the FT saying the ECB had provided constant "challenge and guidance" during the strategic overhaul by Chief Executive Andrea Orcel, and that the regulator's "public support" showed its trust in the bank.

UniCredit in September received ECB's approval for a second share buyback tranche of up to 1 billion euros, with analysts welcoming the green light as a sign of a "case by case approach" and good news for the sector.

The COVID-19 pandemic had prompted the ECB to enforce a dividend ban and analysts are concerned that Europe's energy crisis and looming economic recession may trigger new restrictions.

Orcel has bet on dividends and buybacks to boost UniCredit's share price, which trades at 0.43 times the bank's tangible book value, compared with domestic rival Intesa Sanpaolo's 0.67.

Intesa, which has long made a trademark of its generous dividend policy, has delayed a 1.7 billion euro ECB approved buyback until it releases full-year results.

On Friday Intesa said it also wanted to see first how deep next year's recession will be, while it approved an interim dividend of 1.4 billion euros.

Despite the ECB's preference for dividends to be expressed as payout ratios, Orcel has set a distribution goal of more than 16 billion euros ($15.99 billion) to 2024, saying UniCredit should be able to deliver "the majority" of it even in a severe recession.

Together with Austria's Raiffeisen, UniCredit retains a presence in Russia. Having failed to extricate itself in the early days like Societe Generale, UniCredit would now need Moscow's approval to exit.

Even before that though, it had struggled to find a non-sanctioned buyer.

In the third quarter, Russia boosted UniCredit's results as loan repayments led to writebacks of provisions, but the capital hit in an extreme loss scenario rose slightly to 91 basis points of core capital from 80 basis points.

That would still leave UniCredit's core capital ratio at 14.5% in a worst case scenario, well above a 12.5-13.0% self-imposed minimum threshold and Intesa's 12.4% end-September level.

($1 = 1.0008 euros)

(Editing by Keith Weir, Tomasz Janowski and Jane Merriman)