The stock of UniCredit, Italy’s second-largest bank, has fallen more than 20% since February 24, when Ukraine was attacked, with investors worried about its exposure to Russian credit of 14.2 billion euros ($15.7 billion) since last summer.
Only a fortnight ago, the Milan-listed creditor and his boss Andrea Orcel were working on a plan to take control of Banco BPM in an all-stock deal worth around 7 billion euros, the sources said on condition of anonymity as the matter is confidential.
A high share price was essential to successfully combine Italy’s second and third largest banks, with Banco BPM demanding a premium of at least 40%, one of the sources said.
While Banco BPM’s stock has also been affected by the conflict in Ukraine, losing nearly 15% since the start of the invasion, the bank has no exposure to Russia.
“The deal is on hold. UniCredit needs to wait for its stock to recover and the geopolitical environment to stabilize.”
(Chart: UniCredit share price,
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For UniCredit, a tie-up with Banco BPM is essential to increase its market share in Italy, where Intesa Sanpaolo is the largest bank with strong market penetration in the affluent regions of northern Italy.
UniCredit and Banco BPM both declined to comment.
UniCredit has been actively working on a possible takeover of Banco BPM since the arrival of Orcel last April, with plans to return cash to shareholders aimed at supporting the bank’s share price and securing stronger acquisition currency, according to one of the sources.
Orcel was close to making a bid at the end of February, after sounding out regulators at the European Central Bank and Italian authorities for their support, according to two separate sources.
However, talks to finalize the plan were halted on February 24 due to market turmoil following Russia’s invasion of Ukraine and Western sanctions, the sources said.
A full write-off of UniCredit’s Russian operations would cost the Italian bank more than 1 billion euros and reduce its better quality capital ratio by 35 basis points, two other sources said. Such an extreme measure would still leave UniCredit with €6 billion of cross-border exposure.
In an attempt to reassure investors, UniCredit said on February 24 that loss provisions covered 84% of its Russian arm’s non-performing exposures and that Russia represented only 3% of the group’s revenue.
($1 = 0.9022 euros)