UniCredit’s Turkish Unit Is Biggest Drain on Italian Bank’s Funds

(Bloomberg) -- Turkey’s economic woes may cost UniCredit SpA more than 1.5 billion euros ($1.7 billion) this year after the Italian bank’s venture in the country sought funds for a second time in eight months.

Italy’s biggest bank plans to buy about 40 percent of the $1 billion in additional Tier 1 bonds that Turkish unit Yapi Kredi is planning to sell, according to two people with knowledge of the plan. Koc Holding AS, the Italian lender’s partner in the joint venture, is said to be buying the same amount.

The purchase would make good on UniCredit Chief Executive Officer Jean-Pierre Mustier’s promise to keep the bank’s stake in the lender and support any recapitalization it may need. Yapi contributed about 200 million euros to UniCredit’s profit in the first nine months.

The Istanbul-based lender is tapping its owners for a second time after it raised a similar amount through a rights offer in April in which UniCredit invested about 330 million euros. In addition the Yapi Kredi fund raising, the Italian bank took a surprise 850 million-euro charge in the third quarter to revalue its stake in the bank after lenders across Turkey were squeezed by a plunge in the country’s lira.

Liquidity Touched

“Support for Yapi is an obligatory step for UniCredit, which should not hurt the bank’s capital position, but will mean smaller liquidity buffer,” said Marta Bastoni, an analyst at Bloomberg Intelligence in London. The Italian bank’s liquidity coverage ratio “has declined to 162 percent at the end of third quarter from 192 percent at the end of March.”

UniCredit fell as much as 0.9 percent in Milan trading and was down 0.6 percent at 10.58 euros as of 10:28 a.m., giving the bank a market value of 23.6 billion euros. The stock has dropped 32 percent this year compared with a 27 percent decline of the 48-member STOXX 600 Banks Index.

Last month, UniCredit turned to Pacific Investment Management Co. to raise $3 billion through five-year bonds at a cost that was six times greater than what it paid in January amid stress in the market. Pimco was the sole buyer of the bank’s surprise sale, people with knowledge of the transaction have said.

UniCredit bought a stake in Yapi Kredi with Koc Holding in 2005 and each investor holds half of their approximately 80 percent holding. Last month, Mustier called the bank’s outlook on Turkey and trading revenue “super conservative” and said management expects some upside on Yapi Kredi. The CEO also said he isn’t planning to book additional impairments of its stake in the Turkish bank even if it faces more market turbulence.

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