UniCredit is selling its unprofitable Ukrainian unit as it focuses on the region’s growing and more stable countries like Poland, the Czech Republic and Turkey.
Bloomberg/Milan
UniCredit’s sale of its Ukrainian unit may force the Italian lender to book hundreds of millions of euros in fresh losses.
The Milan-based bank, which is in exclusive talks to sell JSCB Ukrsotsbank to ABH Holdings, will probably have to record currency losses once the sale is completed, according to the first-half report published on UniCredit’s website this week.
In addition, it may have to inject capital and forgive loans to the unit before a possible deal.
“Banks continue to pay for the sins of the past,” said Jonathan Tyce, senior banks analyst at Bloomberg Intelligence. “UniCredit wrote off more than $18bn of goodwill from 2010 to 2014, and the ultimate cost of the Ukraine exit shows that there is still some clearing of the decks to go.”
UniCredit, the biggest foreign lender in former communist eastern Europe, is selling the unprofitable unit as it focuses on the region’s growing and more stable countries like Poland, the Czech Republic and Turkey. UniCredit bought the bank in 2007 in a deal valuing the company at more than $2bn.
The lender said on August 7 it’s in talks with Alfa Group’s ABHH to sell the unit in exchange for a minority stake in ABHH.
UniCredit’s exit from Ukraine comes two years after it sold Kazakhstan’s ATF Bank, a $2.1bn investment made just before the financial crisis that also resulted in losses.
At June 30, UniCredit faced €641mn ($713mn) of foreign exchange charges on the unit caused by the depreciation of the Ukrainian hryvnia that are not yet booked in the income statement and will have to be recognised when the deal closes, UniCredit said in the report posted on August 11. The charge will be greater if the hryvnia falls against the euro.
While negative currency reserves aren’t booked in the profit and loss accounts until they are realised, they are deducted from the bank’s equity as they occur, hence regulatory capital ratios won’t be affected by that loss.
On top of the unrealized currency loss, UniCredit also flagged that it wasn’t certain how much of its exposure to Ukrsotsbank was “recoverable” in the sale of the unit, for which it may be paid with a minority stake in ABH.
The unit’s book value stood at €251mn at the end of June after another €100mn write-down in the second quarter. UniCredit also still has €519mn in parent loans to the unit outstanding.
“The recoverable amount of the overall exposures at the end of the disposal process in progress may differ from these estimates, according to the outcome of the negotiations,” the bank said in the report.
UniCredit has pledged to boost Ukrsotsbank’s capital if it drops below regulatory requirements before the transaction is concluded. It did that already in March and in April, when it forgave $250mn loans to the unit and swapped another $250mn of loans into equity.
That comes on top of a €632mn loss on Ukrsotsbank that UniCredit booked in its 2013 accounts, when it classified the unit as available for sale, and the additional €100mn write-down done in the first half of this year. A sale above book value could curb the loss.
