Clash between UniCredit and the ECB Supervision on dividends and Russia: this is what an article in the Financial Times reported asking some sources close to the dossier. The tension between the bank led by Andrea Orcel and Frankfurt would be quite high, and would see as a bone of contention, in addition to the coupons promised to shareholders and the continued presence in Russia, also the infinite case of Monte dei Paschi di Sienawhich has just completed its seventh capital increase in the last 14 years, raising € 2.5 billion.
“ECB officials – reads the article of the FT – they were also disappointed by the lack of information from Orcel during the initial negotiations with the Italian government (Mef, the largest shareholder of Mps with a 64% stake) regarding the potential acquisition of Banca Monte dei Paschi di Siena ”. Potential acquisition which, the British newspaper recalls, then resulted in a stalemate.
“Orcel – writes the Financial Times – he is less proactive in keeping the ECB updated on the bank’s decisions than his own predecessore Jean Pierre Mustier, according to several people close to the file. But UniCredit believes that it has provided security with the same information as was provided before Orcel took over, only through different channels ”.
The UniCredit share suffers on the stock market, confirming itself the worst of the Piazza Affari Ftse Mib index.
The conflict between UniCredit and the ECB Supervision, explains the newspaper, was born “Since the first days when CEO Andrea Orcel took the lead, in April 2021, launching an aggressive strategy to review UniCredit operations and to pay more dividends to shareholders“. The tension would have remained and would have also intensified, given that the two counterparties expressed their opposing views in some letters, according to a source consulted, who reported that the relations between the ECB and UniCredit “They are more than just a little tense”.
Dividends in the sights of the ECB: focus on UniCredit gift of 16 billion
A bone of contention it definitely is the disbursement of dividends of 16 billion euros to shareholders, that Piazza Gae Aulenti has promised to deliver by 2024.
It is no mystery that the ECB has already invited euro area banks to review their strategic plans, primarily the impact that they might have on their capital levels.
“We are pushing banks to focus heavily on concentrating exposures to sectors that are particularly energy-dependent and sensitive to energy shocks “said Andrea Enria, number one of the ECB Supervision, towards the middle of September – Consequently, we ask the banks to review their capital projections in severe and adverse scenarios“.
“The Russian invasion of Ukraine is turning into a real macroeconomic shock”, Enria warned, asking the banks to “do not project default rates forward myopically exceptionally low experienced in the last two years “ .
About three weeks ago, in an interview with Bloomberg, Steven Maijoor, who sits on the supervisory board of the ECB, he said the European Central Bank and other authorities would evaluate the banks’ plans “case by case”, due to the different levels of vulnerability of institutions to the danger of a recession. “Banks have significant capital buffers above the minimum required levels and we are in favor of maintaining these buffers – Maijoor pointed out – This means that, when looking at dividends, we take their trajectories into consideration ”. “What we ask – continued the banker – is to be cautious with dividends and share buybacks ”.
ECB, confrontation with UniCredit on coupons. Orcel replies like this
Returning to the case of the bank led by Orcel, the FT recalled in the article that “Italy and Germany – which are the two main markets of UniCredit – they should be the countries most affected by the energy crisis that hit Europe, given their previous strong dependence on Russian gas ”.
Those 16 billion euros that UniCredit has pledged to shareholders by 2024 therefore they will not have gone down to Enria & Co. also because, some sources have reported, it is a move “Which goes against the official guidance, which is that banks should not set their dividend policies in terms of absolute amounts”. Another source also told the Financial Times that, usually, “When regulators send out a list of questions, they can compromise on the answers” but that Orcel’s style is the following: ‘I’m right because we have all this capital ”.
The strength of UniCredit’s capital is confirmed by a CET1 ratio of 15.41% and Andrea Orcel – explains the FT – has made the distribution of greedy dividends “The key pillar of its strategy” so that “UniCredit is preparing to distribute 3.75 billion euros this year through dividends and purchases of its own shares”.
This strategy “contrasts with Mustier’s more cautious one, which focused on reducing non-performing loans, on cost cutting and capital strengthening “.
It is worth remembering fasting and the subsequent guillotine at the coupons that were imposed on banks across the Eurozone with the explosion of the Covid-19 pandemic in March 2020: the restrictions were lifted only 18 months later when shareholders toasted the return of dividends.
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The FT also points out that, given that the euro area share buyback operations must be approved by the ECB, in the case of UniCredit the European central bank has, in fact, given the go-ahead for the purchase of 2.6 billion of its own shares, during this year, in two separate tranches.
In September, the ECB approved the second tranche, although the green light took longer to arrive and it was “Anything but clear”, a source pointed out.
That said, the UK newspaper also points out that the UniCredit has collected a rally of over + 45% since the arrival of Orcel, doing better than most European rivals. See Graph
UniCredit, for its part, remarked to the FT to foresee a record net profit of 4.8 billion euros this year, and to generate more than 6 billion euros of organic capital, adding that “Both levels are the best in the industry”.
Yet another point in favor of the bank: Piazza Gae Aulenti has almost halved the exposure towards non-performing assets – for a long time a source of concern for the ECB – from 5% of its loan book in 2019 to 2.8% this year.
UniCredit and Russia: another bone of contention with the ECB
There is another thorn in UniCredit’s side, which Orcel is evidently in no hurry to extract: it is called, and the name says it all, Russia. For the ECB, an undeniable source of risk.
In fact, on the occasion of the publication of the accounts for the first nine months of 2022 and the third quarter – which undoubtedly made the history of Piazza Gae Aulenti – the bank announced that its exposure to Russia “has been reduced at minimal cost, overall by 50 per cent to 3.1 billion euros, through proactive and disciplined actions “in the context of “A progressive de-risking approach”, that UniCredit intends to continue pursuing. Without however no rush to escape it must be said, given that Orcel it has no intention of selling off its assets in Russia.
Already on the occasion of the presentation of the accounts for the second quarter, at the end of July, the CEO had pointed out that “Russia itself is performing well financially and this cannot be forgotten. On the other hand, there are political assessments that cannot be ignored: in short, a progressive disengagement is needed, done in the best possible way, safeguarding those who work there and our customers “.
So Orcel had then reiterated at the end of September, in a speech delivered at the 27th annual Financials Ceo Conference of Bank of America Merrill Lynch:
“A hasty exit from Russia would have been an emotional and even immoral reaction because it would have been a gift to the people you are trying to oppose. We are trying to contain in an orderly way what we have in Russia and possibly an exit, but it doesn’t have to be a gift “, the CEO of Piazza Gae Aulenti underlined, adding that UniCredit still wishes to think about the future of its employees in Russia, which number 4,000, and that“They have been with us for more than 15 years”.
Despite his strategy, a source close to Orcel reported that the CEO stands “Receiving a lot of pressure from the ECB” regarding its exposure to Russia.
UniCredit told the Financial Times to be “Committed to leaving Russia in an orderly and decisive manner”.
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At the beginning of June, the Reuters agency reported, on the basis of what was learned from two sources close to the dossier, that UniCredit had entered into negotiations with (potential) local (therefore Russian) buyers, but that the escalation of the sanctions imposed by the West against Russia it had hindered the negotiationsleading Piazza Gae Aulenti to extend its research to countries that included China and Indiawhere one of the two sources had reported that there could be companies interested in taking over the assets of the Russian bank.
It was also learned that, at the beginning of March, the Russian division of UniCredit had replaced two Italian board members with two Serbian citizens.
Surely, Andrea Orcel will keep the point, also strong of the support of the shareholders who are unlikely to be in favor of the dividend binge after having remained dry-mouthed in times of Covid. A binge that, however, depends on the authorization of the Eurotower, which, in times of recession, would be more willing to harness them than to make them grow. And in this case, we are talking about all the banks in the euro area.