UniCredit SpA has said it would not meet minimum capital adequacy ratios for 2016, or the SREP requirements that came into force in January 2016, meaning it would not be able to pay dividends to shareholders, coupons on Additional Tier 1 instruments or bonuses to employees until it meets those requirements.
The common equity Tier 1 ratio would fall to 8%, below a minimum threshold of around 10%, but its planned €13 billion rights issue would push the ratio above that threshold, Reuters reported Jan. 30, citing the bank.
The bank's dividend, AT1 coupon and bonus payments would be adversely affected if the planned capital increase is not fully subscribed, UniCredit said the same day.
The lender said it would post a total of €12.2 billion in nonrecurring costs for the fourth quarter of 2016, which are mainly linked to its efforts to dispose of noncore assets and nonperforming loans. Its annual report for 2016 is set to be approved Feb. 9, and UniCredit said it would officially notify the ECB of its capital shortfall at that time and also send an update on how it will increase its capital levels, which would include measures already communicated in its strategic plan.
UniCredit CEO Jean-Pierre Mustier had said that the share sale and balance sheet clean-up were not requested by regulators, but the document published said the ECB, in its 2016 Supervisory Review and Evaluation Process, found several weaknesses, including mounting costs in Germany and Austria, according to the report.
UniCredit also said the ECB found that the lender's capital adequacy ratios were low compared to other global systemically important banks. At the same time, the regulator expressed concerns about UniCredit's liquidity levels and its credit risks, particularly in relation to its "elevated level" of bad loans. The ECB requested the bank provide a plan by Feb. 28 on how it would deal with bad loans, noting that the lender had a persistently "weak" level of profitability.
Four ECB inspections are currently underway, the bank said.
UniCredit's share price was down by almost 6% as of 4 p.m. in Milan on Jan. 30.