Unicredit, Italy's largest bank, on Monday reported a huge euro10.6 billion ($14.48 billion) net loss for the third quarter, including writedowns on Greek debt and losses on several subsidiaries, as it moved to raise new capital and slash thousands under a massive reorganization plan.
Trading in Unicredit shares was suspended after plunging over the massive setback, which compared with earnings of euro335 million in the same period a year earlier. They closed down 6.18 percent lower at euro0.774.
The bank said in a statement that the loss was due to a writedown of euro8.7 billion on the value of acquisitions, including that of entire operations in Ukraine and Kazakhstan. It also includes the writedown of euro135 million in Greek debt, and additional writedowns of brands, including Hypovereinsbank and Banca di Roma.
CEO Federico Ghizzoni said the writedowns will ensure that "the balance sheet ... will not create any surprises in the future."
"All of this is an accounting adjustment. The impact on capital is zero. The impact on liquidity is zero."
The bank said in a statement that the financial performance was hit significantly by market volatility, which caused trading losses and an increase in writedowns on loans.
The bank lost euro285 million in trading, compared with trading earnings of euro381 million a year earlier. Losses on loans were up 13 percent to euro1.8 billion, compared with euro1.6 billion in the same period a year ago.
The bank said the writedowns had no impact on its capital ratios, which it is trying to improve by raising cash.
It has proposed a capital increase of euro7.5 billion, which it said would strengthen its core Tier 1 ratio, a sign of a bank's health, to 10.35 percent as of Sept. 1 under current rules, and well above the 9 percent next year under new accounting rules.
No dividend will be paid in 2011, but Ghizzoni said it would return in 2012.
The bank also said that it would reduce its staff by 6,150 within five years, much of that in Italy, as part of its 2011-15 strategic plan released Monday. The Italian reductions will be achieved mostly through turnover and early retirement, Ghizzoni said.
The bank aims to achieve a net profit of euro6.5 billion by the end of the business plan by turning around its Italian business, refocusing central European operations more selectively, downsizing and simplifying operations in mature markets.
The bank plans to focus on commercial banking, streamlining its investment operations to serve the 20 million families and 2 million businesses that form its customer base, Ghizzoni said.
In central and eastern Europe, Ghizzoni said the bank would focus on its strategic businesses in Russia, Poland, Turkey and the Czech Republic, four countries where the bank feels it can grow, as well as Bulgaria, Croatia and Hungary. Ghizzoni said other businesses _ including in Kazakhstan and Ukraine _ were more vulnerable.
Unicredit grew from a regional player to a pan-European bank through a series of acquisitions, particularly from 2005-2008. Ghizzoni took over as CEO after Alessandro Profumo, who drove the expansion, was forced out last year in a dispute after Libya increased its share in the bank.
Ghizzoni said he did not believe that Italy's higher borrowing rates accurately reflected the economic picture in Italy, which represents about one-third of Unicredit's deposits and 37 percent of its risk.
"I can't believe the very high perception of risk today is reflecting the realities of Italy. It is more a question of perception and political credibility," Ghizzoni said. "I am sure this perception will improve."
Unicredit holds euro40 billion in Italian bonds, with an average maturity below 12 months, he said. Exposure to Spanish debt is euro2 billion. The bank has done previous impairments on Greek debt, now covering 57 percent of its euro400 million in exposure.