UniCredit expects 11.8 billion euro loss for 2016, misses capital goal

MILAN (Reuters) - UniCredit CRDI.MI said it expects to book a net loss of around 11.8 billion euros ($12.6 billion) for 2016 and fall short of European Central Bank capital requirements, highlighting the importance of a planned 13 billion euro rights issue.

Unicredit's bank logo is pictured on block notes and pens at the headquarters in Milan, Italy, February 9, 2016. REUTERS/Stefano Rellandini/File Photo

Italy’s biggest bank, which could launch its share sale as early as Feb. 6, said on Monday that its Common Equity Tier 1 ratio (CET1) - a key measure of financial strength - would fall to 8 percent, below a minimum threshold of around 10 percent.

This is because the bank expects to book 12.2 billion euros in one-off charges in the fourth quarter - a figure already announced to the market - as it cleans up its balance sheet from a mountain of bad loans.

The capital deficit will be fully restored after the rights issue is wrapped up, before March 10, the bank said in a statement. It confirmed it still aimed for a CET1 ratio above 12.5 percent in 2019.

The lender, identified by financial regulators as Italy’s only globally systemically important bank, said besides the 12.2 billion euros in one-off items, it would also be booking charges of around 1 billion euros to cover writedowns in bank bailout fund Atlante and contributions to the National Resolution Fund.

“As a result the 2016 Group’s estimated net financial result is expected to record a loss of approximately 11.8 billion euros,” it said.

Excluding the one-off items, the bank would have made a net profit in 2016, it said.

In December UniCredit announced 14,000 job cuts and more than 900 branch closures as part of plans by Chief Executive Jean-Pierre Mustier, appointed in July, to turn the bank around.

Mustier has repeatedly said the share sale, Italy’s biggest ever, and massive balance sheet clean-up had not been requested by regulators.

However, in a document published on Monday relating to the cash call, UniCredit said the ECB, in its review of the lender, had found several weaknesses. They included low capital ratios, weak profitability, a high level of bad loans in Italy, big costs in Germany and Austria and risks linked to its exposure to Turkey and Russia.

The bank also said four ECB inspections were currently underway. The ECB has asked UniCredit, among other banks, to present a plan for its bad loans by Feb. 28.

The bank said the steps announced in December, which include the sale of bad loans worth 17.7 billion euros, should address the issues raised by the ECB, but warned there was a risk they may not be sufficient.

The ECB’s banking supervisory chief, Daniele Nouy, told la Repubblica daily in an interview on Monday that Italy had made “scant progress” on its banks’ problematic loans, which stand at 356 billion euros in gross terms - or a third of the euro zone’s total.

UniCredit shares closed down 5.5 percent, underperforming a 1.7 percent fall in the European banking index .SX7P, with traders blaming the approaching share sale for the fall.

Additional reporting by Stephen Jewkes; Editing by Mark Potter and Susan Fenton