UniCredit will continue restructuring plan with increased capital requirements

UniCredit may face tougher capital requirements from European regulators as a condition of its restructuring plan. The plan is set to transfer UniCredit's central and east European assets from Vienna to Milan in an effort to cut costs of €1.6bn by 2018, lowering the Common Equity Tier 1 ratio of its Austrian retail business, Bank Austria, to 11.3%. The transfer is set to go ahead, however, with Bank Austria remaining confident that it can meet the increased capital requirements.

UniCredit to face regulatory demands for CEE asset transfer - source

VIENNA, July 11 (Reuters) - European regulators may impose tougher capital requirements on UniCredit's Austrian bank as a condition for approving the transfer of its central and east European assets to Milan, a source familiar with the matter said on Monday.

The transfer of the assets from Vienna, due to be concluded by the end of 2016, is part of the Italian bank's restructuring plan which targets cost cuts of 1.6 billion euros ($1.8 billion) by 2018 and includes an overhaul of its struggling Austrian retail business.

"If UniCredit transfers the (central and east European) business as planned, Bank Austria's Common Equity Tier 1 ratio would be at 11.3 percent," the source said. "The regulator considers this as too low."

Austrian broadcaster ORF and daily newspaper Kurier also said the regulators' approval would rely on a higher capital buffer at the Austrian division.

Bank Austria, which for now includes the assets from 14 countries in central and east Europe, reported a Common Equity Tier (CET) 1 ratio - a measure of a lender's financial strength - of 11.2 percent as of the end of March.

Its parent UniCredit, which is facing investor discontent over its stretched capital position and low profitability, posted a CET 1 ratio of 10.5 percent as of end March, just above the European Central Bank's requirement of at least 10 percent.

The ECB, the Austrian central bank and the Austrian regulator declined to comment as did UniCredit.

Bank Austria said the transfer would be concluded as planned. "UniCredit Bank Austria has always met regulatory capital requirements in the past and will do in the future," the bank said in an emailed statement.

A leading bank in central and east Europe, UniCredit generated 16 percent of its overall revenue last year of 22.4 billion euros in the region, while net operating profit in the region grew 24.5 percent.

The Austrian business contributed 7 percent to group sales with a stable net operating profit.