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Bloomberg
UniCredit SpA became the first big European bank to try to quantify the impact of the coronavirus, setting aside 900 million euros ($977 million) to cover potential loan losses stemming from the outbreak.
Italy’s biggest bank said it will book the provisions for possible soured loans after estimating that the pandemic will cause a 13% contraction in the eurozone’s economy this year. That’s even after widespread government efforts to blunt the impact, including billions to help failing businesses and bank guarantees.
UniCredit, like most Italian lenders, faces the possibility that the economic crisis due to the lockdown could undo years of reforms that improved their balance sheets and reduced piles of bad loans. The biggest US lenders collectively set aside $25 billion for soured debt in in the first quarter.
Provisions for future bad loans will be a major focus for Italian and European lenders in the first quarter as European officials urge them to be flexible in their accounting to keep credit flowing. The banks are likely to report small increases in loan loss reserves compared with their US peers, Bloomberg reported last week, citing senior bankers and regulators.
UniCredit rose as much as 2.4% in Milan trading and was up 1.8% as of 9:25 am The stock is down 49% this year, slightly more than the Stoxx Europe 600 banking index.
The coronavirus cataclysm has blown a hole in Chief Executive Officer Jean Pierre Mustier’s blueprint outlined in December when he announced a plan focused on higher profits and dividends. The CEO is focusing on accelerating a cleanup of bank’s balance sheet and simplifying its structure to improve investor returns.
Earlier this month the bank reached an agreement with workers to cut 5,200 existing jobs in Italy through 2023.
The lender also revised its cost-of-risk estimates to about 110 basis points in the first quarter and 100 to 120 basis points for the full year. It currently expects a 10% economic recovery in the euro area next year, when it sees the cost of risk falling to 70 to 90 basis points.