I have been warning of the perilous position of Italy's Unicredit (OTCPK:UNCFF) for some time now (see this initial EU Bonds post, or the earlier history of the Unicredit problem, here, here, here, here, and here). Well today the story took another turn for the worse.
It all started yesterday when Bloomberg came in with a report about Unicredit's eastern exposure, outlining how a decade long expanison, which saw more than $65 billion of acquisitions in operations stretching from Poland to Kazakhstan, is now alarming analysts who forecast that loan defaults in eastern Europe, where the bank focused its growth, are set to balloon. Unicredit's stock is down 76 percent in the past 12 months, the second-biggest decline among Italian banks.
“Eastern Europe is the new bogeyman,” said Massimiliano Romano, an analyst at Concentric Italy in Milan. “UniCredit has subsidiaries in 17 different countries there. We used to see that as diversification, now we see it as a risk.”
Then came the news again yesterday, that the bank had suffered a 57 percent decline in fourth-quarter profit. Finally this morning, the bank informed us that they are planning to ask for as much as 4 billion euros in government aid. In fact, the earning results were not as bad as some analysts had been forecasting, but then these results are for 2008, which, as the company said in its statement, was still a “very good year” in eastern Europe. 2009 looks set to be significantly worse. As Unicredit CEO Alessandro Profumo said, the bank is "monitoring countries including Ukraine very closely."
In fact, the bank is going to apply for aid in both Austria and Italy, and this is not surprising since according to a statement from the Bank of Italy earlier this week, Italy's national debt climbed to 105.8 percent of gross domestic product at the end of last year, up from 103.5% in December 2007. So the credit rating agencies' patience is already being badly strained, even if the quality of their mercy might not be.
Oh, and just to cap it all off, HVB Group, Unicredit's German banking unit, announced this morning that they had a loss of 671 million euros last year because of writedowns on investments and higher provisions for risky loans. HVB’s trading results were “severely affected by the extreme market turmoil which intensified in the fourth quarter of 2008,” according to the company statement.
Basically, this is that well known proverbial situation, where Europe's leaders twiddle their thumbs, while Rome, almost literally, burns.