UniCredit investment bank growth slowing in H2

LONDON (Reuters) - UniCredit's (CRDI.MI) investment banking operations will not be able to sustain the high growth it experienced in the first half, but will still beat targets for the full year, its Deputy CEO said on Tuesday.

Problems in the U.S. subprime mortgage market earlier this year have triggered prolonged turmoil in the credit markets, which is hurting banks across the globe.

"(We had said) the first half of the year was not sustainable. Unfortunately, we have been proven correct," Sergio Ermotti, Deputy Chief Executive at Europe's third-largest bank UniCredit, told the Reuters Finance Summit in London.

"We are still confident we will beat our targets for the year. This is not an issue, but for sure, the situation in the market has changed," he added.

Investment banking accounts for about 20 percent of UniCredit's profit, Ermotti said. The Italian bank is due to report results next week.

Ermotti said the current market turmoil was not having an impact on UniCredit's integration of smaller Italian peer Capitalia, which it took over this year, nor on the expected synergies.

"We expect by the end of the fourth quarter, beginning of first quarter 2008, to have fully consolidated Capitalia," he said.

Ermotti also said UniCredit would be prepared to consolidate off-balance-sheet items if required by regulators.

The Bank of Italy said in a speech last week Italian banks, thought to be among the less exposed lenders in the current crisis, should consolidate off-balance-sheet financial vehicles such as conduits, but no formal request has yet been made.

"If we are required to consolidate our off-balance-sheet items, we will do so. It will account for less than 1 percent of our RWA (risk-weighted assets), so that is not a meaningful exercise for us," he said.

But he called for regulators to be consistent in their approach to avoid regulatory arbitrage.

"The level of disclosure is something we all need to improve, but the utmost important thing is consistency in the banking system and in what people disclose," he said.

NO ACQUISITION IN SIGHT

The senior executive reiterated that UniCredit was not actively looking for deals after having swallowed up Capitalia and German bank HVB in less than two years, even though the current crisis had depressed the value of banking assets.

"The history of UniCredit is a history of acquisitions, but we now feel we have a critical mass and we can be more choosy," Ermotti said.

He said Germany could still offer acquisition opportunities to bidders as its banking market was very fragmented, but he added that recent valuations had been too high.

UniCredit's acquisition of HVB gave the Italian bank leadership in the fast-growing markets of central and eastern Europe, and Ermotti said UniCredit continued to see big growth opportunities in Russia, Turkey and eastern Europe.

"In Russia we want to expand in retail," Ermotti said.

(editing by Will Waterman)