It is not an easy time to assess the financial sector in this unprecedented time. We had mixed feeling about UniCredit (OTCPK:UNCFF), and for readers who have always followed us, we have always cherry-picked Intesa San Paolo.
Immediately after Ukraine’s invasion, UniCredit launched a strategic review which, among the various options, could include the subsidiary sale. However, the recent tightening of Western sanctions has made exit procedures for Western banks even more complex, and today dealing with subjects close to the Kremlin has become prohibitive. This is why UniCredit has initiated contacts with subjects outside the country led by Vladimir Putin, with the aim of enhancing asset value. CEO’s goal is to avoid a write-off, similar to the one recorded by Societe Generale which sold its entire stake in Rosbank and its insurance branches to Interros Capital taking in a loss of over €3 billion.
For Orcel, devaluing UniCredit’s activities in Russia would not be correct, on the contrary, it would be like giving someone a gift. The CEO Andrea Orcel returned to talk about the possible exit from Moscow on which the Gae Aulenti group has been working in recent months. “Our exposure in Russia has been managed in a rational way: we have reduced it but devaluing the business is not fair and it is not even in line with sanctions. It would be like giving a billionaire business to someone who vetoed it for nothing “explained Orcel, speaking to Young Factor. The banker recalled UniCredit’s presence in the country: “we have 4,000 employees and 1,500 companies with respect to which we are corporate banks” specifying that leaving the operation would not hurt just Russia, but UniCredit would hurt European companies that are trying to gradually get out.
Moreover, the Russian activities of UniCredit did not go bad in Q1. In fact, the group’s quarterly report shows that revenues jumped 79% compared to the previous quarter to €230 million. This was due to the ruble’s strong volatility that pushed trading up, while the rate hike decided by the Moscow central bank had a very positive effect on the interest margin which, in the first three months of the year, rose by 15.4%.
Positive News Ahead and Conclusion
UniCredit is strengthening its digital division with a series of appointments. The bank just announced that Giovanni Damiani will become Head of Group Digital Excellence. In May, UniCredit’s €1.6 billion buy-back plan was authorized by the ECB, and in a 414-page document published this morning, UniCredit summarizes the hundreds of micro-operations for the purchase of securities carried out between 6 and 10 June at a weighted average price of €10.49. Since the buy-back first tranche, the bank has purchased over 66.8 million shares, or 3.06% of the capital, for a value of €683.3 million.
The €1.6 billion share repurchase plan, added to the 1.2 billion dividends already distributed, brings the resources made available to shareholders for this year to €2.8 billion. Regarding Russia’s activities, we positively favor UniCredit’s decision to proceed with more calm than Societe Generale. As we already mentioned last time, the bank could return its entire capitalisation in four years. Valuation and rating are confirmed.
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