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Unicredit: Q3 and strategic plan, rights issue

Unicredit reported a Q3 net loss of EUR10.6bn accounted for by EUR9.1bn in various goodwill impairments. Other one–offs were recorded including GGB impairment of EUR135m, Trademarks impairment of EUR662m, and severance costs and DTA write-offs. The non-cash items make up nearly all of the loss (EUR9.8bn) and as such does not impact capital (goodwill is not included in capital calculation) ratios or cash balances.

3Q11 Pre-tax earnings before the above exceptionals were a loss of EUR400m, driven by a -€285m trading loss (due to marking to market of government bond holdings) and loan impairments of €1.8bn (vs EUR1.1bn in Q2). Impairments were notably higher in Italy. Similarly to its Italian peers, the bank reported a fall in securities funding by 7% qoq (-€12bn), led by short-term wholesale as well as the lack of access to unsecured funding. This was replaced by increase in interbank market access.

Announced alongside results was the 2015 strategic plan which has objectives of: net profit of EUR6.5bn (2010 was EUR1.3bn) ROTE of c.12%; being Basel 3 compliant in terms of balance sheet indicators; being net interbank positive; lower cost of risk; and to run on a cost/income ratio of 50%.

The capital management plan to improve core capital includes:

1) €7.5bn rights issue. EGM on 15th Dec to approve package with launch Q1 2012. The size of the capital increase is in line with recent press indications (IlSole24Ore

2) CASHES restructuring of EUR2.4bn (of the total EUR3bn. The remaining EUR600m will remain and be included as Additional Tier 1 Capital going forward)

3) No dividend 2011. Will restart for 2012 year.

4) RWA management- by ring fencing non core but performing assets into a EUR48bn run off portfolio.

The impact of the above measure will generate full Basel 3 CET1 >9% in 2012 and >10% in 2015.