Introduction
The European Central Bank (ECB) is prepared to take further action if it finds that UniCredit has not sufficiently reduced its operations in Russia, according to the bank's recent investor document.Context
UniCredit, Italy's second-largest bank, is set to launch its €14 billion tender offer for Banco BPM on April 28, after receiving approval from the market regulator Consob. In its investor communications, UniCredit highlighted various risks associated with its operations in Russia, where it maintains a retail banking presence.Developments
The bank disclosed that a total loss of its Russian unit would result in a more than 50% decline in its projected 2024 profits, dropping from €9.7 billion to €4.2 billion. Despite this potential impact, UniCredit indicated that the effect on its core capital ratio—an essential indicator of financial stability—would be limited to a maximum decrease of 0.5 percentage points. This is influenced by the idea that divesting its Russian assets would free up capital despite their net asset value of €5.5 billion.UniCredit acknowledged the specific risks associated with its operations in Russia due to the ongoing conflict in Ukraine, a concern also recognized by the ECB. Last April, the ECB imposed deadlines on UniCredit to accelerate its exit strategy from the Russian market, a matter that has since been contested by the Italian bank in court.
The bank has expressed that adhering to the ECB's guidelines could potentially conflict with Russian laws or international sanctions. CEO Andrea Orcel reiterated to shareholders that UniCredit is striving to comply with the ECB's directives aimed at minimizing risks related to its Russian operations. He emphasized that the ECB retains the authority to enforce additional supervisory measures if it deems UniCredit's response inadequate.
The most significant challenge facing UniCredit in this context appears to be handling payments. It has been reported that the few non-Russian banks remaining in Russia are currently the only institutions capable of processing cross-border payments. In its full-year results announcement, UniCredit noted that cross-border transactions with Russia increased by 8% in the fourth quarter, totaling €9.8 billion, largely due to one-off debt repayments from Western companies.