Debt Crisis to Be Focus in UniCredit Results

Riot police stand guard against workers and youth in Greece who are protesting the imposition of austerity measures inside the country. Europe is suffering from the world capitalist crisis., a photo by Pan-African News Wire File Photos on Flickr.

Debt crisis to be focus in UniCredit results

Tue, Aug 2 2011

* UniCredit shares down 23 pct since start of July

* Reaction to crisis more important than results - analysts

* Investors seeking news on business plan, any capital hike

By Ian Simpson

MILAN, Aug 3 (Reuters) - Investors will look past UniCredit SpA's expected higher second-quarter net profit on Thursday to focus on the reaction of Italy's biggest bank to the sovereign debt crisis it and other lenders are enduring.

UniCredit and other Italian banks, which are big holders of domestic government bonds, have been pummelled as investors dump Italian assets.

Fears are mounting that the euro zone crisis is spreading to Italy with its debt mountain, at 1.6 trillion euros ($2.28 trillion), one of the world's biggest. Many investors are targeting banking stocks as a proxy to cut exposure to the country.

Shares in UniCredit, Italy's biggest international banking player, have fallen 23 percent since the start of July, when funds started selling off Italian banks and government bonds. The stock fell almost 6 percent on Tuesday alone.

By comparison, the STOXX Europe 600 banking index is down 9 percent since the start of last month. UniCredit will be the first big Italian bank to post results since the sell-off began.

Chief Executive Federico Ghizzoni has said the sharp drop is due to speculative short-selling that bears no relation to Italy's fundamentals or the health of its banks.

UniCredit and other banks are facing rising funding costs as investors demand a hefty and growing premium to hold Italian debt. The higher costs are seen as cutting into lenders' earnings.

"We no longer believe Italian banks are a play on interest rates and the factors affecting their performance are now largely beyond their control," Santander analysts wrote in a research report.

Analysts say investors will be especially keen for details on when UniCredit will produce a new business plan and if it could raise capital.

UniCredit is the only big bank to stay out of the latest round of Italian capital increases. They have totalled 11 billion euros and are aimed at meeting Basel III capital requirements ahead of time.

Analysts polled by the bank have forecast second-quarter net profit of 471 million euros on average, helped by a rise in net interest income. The 2010 figure was 148 million euros after a hefty goodwill impairment.

($1=.7017 euro)

(Editing by Lincoln Feast)