Well it must come as something of a relief for any Italian readers we have here at AFOE to learn that UniCredit SpA, Italy’s biggest bank by assets, has definitely NOT incurred losses on the Russian interbank market. Although perhaps I should rephrase that by adding just one extra word: yet. UniCredit has definitely NOT YET incurred (significant) losses on the Russian interbank market. This important piece of information is what we can glean from today’s statement from Unicredit spokesman Marcello Berni to the effect that “We have no losses on the interbank market….The rumors come from a misinterpretation of news that came out today”
The “misinterpretation” – that lead to a 15 cents, or 7.3 percent, drop to 1.85 euros of Unicredit shares in trading today in Milan – was the result of a report from Moscow-based Interfax to the effect that UniCredit was about to sign an agreement with Russia’s central bank to get compensation for losses on interbank operations. The source for the Interfax story was UniCredit Russia Chief Executive Officer Mikhail Alekseyev. But as Marcello Berni points out Alekseyev was referring to possible support the Russian central bank has offered to financial institutions in case of losses on the interbank market, and it should not be read as meaning that such losses had already been incurred, only that Unicredit have hat-tipped the central bank to be readying the money up just in case they do.
The real roots of this problem are to be found in the fact that Unicredit has very substantial exposure to losses in a number of key Central and East European countries, and the Italian government, which already has a debt to GDP ratio of over 100%, is in no position – especially with an economy which looks set to shrink all the way through from here to 2011 – to offer much in the way of cash to support the bank. As I point out in this post, Austria (which is a much smaller country than Italy, but which has similar East European exposure) has already lined up an initial 100 billion euros to support its banks, while the Italian government has remained hesitant to be specific about anything, but seems to be talking about support which only amounts to something like 20 billion euros. So we are left with the rather undignifying spectacle of the leaders of the eurozone’s third largest economy having to rely on Muammar Abu Minyar al-Gaddafi and Vladimir Putin for vital support to keep one of Italy’s leading banks alive.
Unicredit used to also be Italy’s leading bank by market value, but since their stock has now declined by 59 percent in the last six months, and the company’s market value stands at 24.7 billion euros ($31.3 billion), it now lies behind Italian rival Intesa Sanpaolo SpA. I repeat, as far as I can see Unicredit currently constitutes the greatest systemic risk to the eurozone banking system, and people somewhere ought to be thinking very carefully about just what the plan ‘B’ is going to be if all this goes horribly wrong.