UniCredit shares bounce after update on Russia, capital plans

By Valentina Za

MILAN (Reuters) - Shares in UniCredit jumped more than 10% on Wednesday after Italy's second-biggest bank indicated it could bear in excess of 4 billion euros ($4.4 billion) in losses from Russia and still meet capital return pledges.

UniCredit detailed its exposure to Russia late on Tuesday, flagging a 7.4 billion euro loss in a worst-case scenario. It confirmed its cash dividends and plans for a share buyback, making the latter contingent on a key capital threshold.

UniCredit said the worst-case scenario, in which it had to reduce its Russia exposure to zero, would knock 2 percentage points off its Common Equity Tier 1 (CET1) ratio - a key measure of financial strength which stood just above 15% on Dec. 31.

Provided that ratio remains above 13% UniCredit said it remained committed to a share buyback of up to 2.6 billion euros ($2.9 billion) outlined three months ago.

Analysts at JPMorgan and Equita SIM calculated UniCredit could still execute the buyback even if Russia-driven losses ate up to around 120 basis points of its CET1 ratio, or roughly 4.4 billion euros based on Reuters calculations.

By 1525 GMT shares in UniCredit had gained 11.8% against a 6.9% rise in Europe's banking index.

Capital distribution plans unveiled in December by new CEO Andrea Orcel had lifted UniCredit shares to a new four-year high on Feb. 10.

However, escalating tensions and the subsequent Russian invasion of Ukraine have driven shares in the Italian bank down 38% since last month's peak, compared with a 22% drop for the European sector over the same period, Refinitiv data showed.

UBS analysts said the impact reflected the large contribution UniCredit derives from central and eastern Europe, which account for roughly a third of group earnings, as well as the increased uncertainty about capital return targets.

Citi analyst Azzurra Guelfi noted UniCredit's disclosure on risks stemming from the Ukraine war was "more comprehensive than peers ... and the capital scenario ... more conservative."

In addition to the potential losses linked to its Russian subsidiary, UniCredit detailed its cross-border and derivatives exposure.

Net of those, UniCredit's position would be similar to that of peers most exposed to Russia, Citi said.

Among European banks, Austria's Raiffeisen Bank International and France's Societe Generale have the largest Russian exposure. ($1 = 0.9067 euros)

(Reporting by Valentina Za; Editing by Keith Weir)