UniCredit outperforms U.S. sanctions-hit benchmark


By Lisa Jucca

(The author is a Reuters Breakingviews columnist.)

MILAN, April 16 (Reuters Breakingviews) - UniCredit's boss Jean Pierre Mustier is making a virtue out of past sins. Italy's biggest bank by assets agreed on Monday to pay $1.3 billion in penalties to U.S. authorities to settle a long-running probe into sanctions violations. Unusually for U.S. legal disputes, the final bill is lower than UniCredit had provisioned for.

At first sight the UniCredit deal is not dissimilar. It processed payments worth hundreds of millions of dollars through myriad transactions in breach of sanctions against Iran, Libya and other nations up to 2012, U.S. authorities said. Its German unit, the biggest culprit, pleaded guilty. As part of the settlement, UniCredit agreed to have its compliance efforts monitored by an external consultant, while its Austrian unit entered a three-year non-prosecution agreement with U.S. authorities. This shouldn't mean much higher operating costs as the bank had already hiked its guidance at the end of 2018, KBW analysts say.

The difference for UniCredit is in its expectations management. Most bank fine negotiations tend to end up with the final settlement equal or higher than forecast. HSBC , , which ended up paying around $2 billion for enabling money laundering, several times raised provisions but still ended up disappointing investors.

UniCredit, which made the probe public years ago, kept its exact provisions close to its chest. Investors suspected a likely settlement could be north of $1 billion after the bank boosted capital hedges for legal matters and other charges by almost 1.2 billion euros in its 2018 financial accounts compared to 2017. In the event, overprovisioning during past years means a post-tax boost of around 300 million euros in the first quarter of the year and an 8.5 basis points hike to its common equity Tier 1 capital ratio. Whether by luck or judgment, UniCredit's boon will leave chastened peers feeling envious.

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- UniCredit agreed on April 15 to pay $1.3 billion to U.S. authorities to settle probes of violations of U.S. sanctions in Iran and other countries between 2002 and 2012. The agreement, one of the highest for such violations, follows a similar $1.1 billion settlement by Standard Chartered on April 10.

- UniCredit said in a statement that the amount owed was entirely covered by provisions. It added it expected the final settlement to lead to an after-tax benefit of around 300 million euros. That would translate into a boost to the bank's common equity Tier 1 capital ratio of about 8.5 basis points.

- UBS was forced to hike provisions by $450 million in March after a French court ordered it to pay fines of 4.5 billion euros in a tax fraud case. UBS, which had initially played down the legal risks, has appealed for the verdict to be reversed.

- UniCredit shares were up 1.8 percent at 12.7 euros as of 0848 GMT on April 16.


This article appears in: Politics , World Markets , Stocks , Economy

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