Unicredit evaluates the farewell to Turkey, for Mustier priority to capital

After leaving Poland, Unicredit could also renounce its presence in Turkey

After leaving Poland, where it was present with Bank Pekao, UniCredit could further downsize the perimeter of a large pan-European bank, even giving up its presence in Turkey. The reason, according to analysts, would be the strategic priority that the CEO Jean Pierre Mustier assigns to the strengthening of the Cet1 of the group well beyond the capital buffers required by the ECB Supervision.

After the rumors of an imminent sale of the Turkish subsidiary YapiKredi that emerged over the weekend, on Monday morning 25 UniCredit did not deny the hypothesis of sale, specifying, with an official note, that under the new business plan (which will be announced on December 3rd) UniCredit “has discussions with its partner Koc Group on a potential evolution of the current joint venture in Turkey”.

The presence of Unicredit in the Turkish bank is articulated through a 50% stake in the joint venture Koc Financial Services , to which 82% of the capital of the bank Yapi Kredi belongs. According to a report by Citigroup analysts at the weekend, “the book value of UniCredit’s stake in YapiKredi was 1.3 billion at the end of 2018”. Also according to Citi, UniCredit had infra-group loans in favor of YapiKredi and its subsidiaries for 1.8 billion in mid-2019, with a pre-established objective to reduce financing to 1.2 billion by 2020. The rwa (risk weighted assets) attributable to the quota of UniCredit in Yapi amounted to around 23 billion at the end of the third quarter of 2019.

According to the Citi Azzurra Guelfi sector analyst, the sale of the share in YapiKredi could have a positive impact on Cet1in a range between 50-80 points and in negative, resulting in a 10% reduction in earnings per share. “We believe the market could positively see a possible sale – Guelfi writes in the report – because, despite the reduction in future profits, UniCredit could benefit from greater capital available as a buffer for restructuring and regulatory requirements, as well as reducing its cost of capital”. Time will be needed to understand whether the reduction in the scope of activity and the increase in capital ratios will serve to make UniCredit “beautiful” in view of a merger with a bank of the “core Europe”. The new three-year plan that Mustier will present on December 3rd will necessarily be stand alone. We’ll see.