Italian bank posts big losses

After a record loss of 10.64 billion euros for the third quarter, Italian bank UniCredit announced it plans to lay off more than 7,000 employees in Western Europe, abandon core business areas, and bring the bank back to profitability by focusing on more conservative banking in a few key countries, including the Czech Republic.

UniCredit has an expansive banking network that extends to 22 different countries, but is being cut down by the effects of the eurozone crisis on its home country, forcing it to do what one analyst told Reuters was a "massive hatchet job across the business."

"The macro-economic conditions in which banks operate have changed completely," UniCredit CEO Federico Ghizzoni said. "Our balance sheet is now much more in line with current valuations; it's more solid and it doesn't hold surprises for the future."

UniCredit's woes are partly linked to Italy's precarious position in the debt crisis. UniCredit has 40 billion euros of government bonds and the banks share values have slipped. The bank's losses also included about 9.8 billion euros in write-downs, and complete write-offs in Ukraine and Kazakhstan.

The bank is now seeking 7.5 billion euros in new capital and will not pay a dividend for 2011. The bank aims to save 1.5 billion euros in annual costs by focusing on reducing investment banking and doing more stable retail and corporate banking in Italy, Austria, Germany, Poland, Turkey, Russia and the Czech Republic.

"In the Czech Republic, there is potential for conservative banking, and there is room for growth of loans, both on the corporate and household sides, so there is no need to search for more risky opportunities," said Petr Bittner, a Czech banking sector analyst at Česká spořitelna in Prague.

The stability of Czech banks is due to a better liquidity position, a low ratio of fixed loans and a low loan-to-deposit ratio, Bittner said, as well as a better capital position at about 15 percent, compared to the eurozone average of 9 percent.

"We will continue to expand and spread our branch net," UniCredit's Czech Republic General Manager Jiří Kunert told the daily Hospodářské noviny, adding that the branch would have to adapt their plans to the recently lowered GDP growth projection of 0.7 percent for next year. "I don't expect the release of any employees."  The bank will sell or run off 48 billion euros of risk-weighted assets and is considering getting rid of minor assets in East European countries.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com