Unicredit gave a "Capital Markets Day" in London on 12/12/17 and what an upbeat event it was, accompanied by a slidedeck full of green ticks and words like "signed" and "completed", whatever those words actually mean, and probably a lot less than they were meant to signify.

What was shocking, though, was the way Non-Performing Loans were dealt with on slide 14 of the deck, which showed them as:

• nearly €3 bn less than a year ago, by comparing the levels at 30/9/16 and 30/9/17;
• forecast to rise slightly by the end of 2019.

By selecting the dates of 30th September as the basis for comparison, the slidedeck conveniently glossed over that:

• Unicredit took "one-off" specific write-downs on its Non-Performing Loans of €8.0 bn in Q4 2016 (PORTO and FINO)
• NPLs dropped by €9.2 bn from €25.2 bn to €16.0 bn in Q4 2016
• Unicredit raised €13.0 bn in Q1 2017 as a rights issue on the strength of the contention that the write-down of NPLs had been a "one-off" charge

A proper comparison would have inserted the status as at 31/12/16, and drawn attention to the writedowns in Q4 2016:

30/9/16 (CapMktsDay deck)

• Past Due - €1.5 bn
• Unlikely to Pay - €10.7 bn
• Bad Exposures - €13.0 bn
• Total NPLs - €25.2 bn

"One-off" writedowns on NPLs taken in Q4 2016 (rights issue prospectus)

• PORTO Project - €4.5 bn
• FINO Project - €3.5 bn
• Total of specific "one-off" writedowns - €8.0 bn
• Total charges in Q4 2016 anticipated in the rights issue documents - €12.2 bn
• Actual total charges in Q4 2016 as per the Annual Report - €14.3 bn

31/12/16 (2016 Annual Report)

• Past Due - €0.4 bn
• Unlikely to Pay - €9.5 bn
• Bad Exposures - €6.1 bn
• Total NPLs - €16.0 bn

30/9/17 (CapMktsDay deck)

• Past Due - €1.2 bn
• Unlikely to Pay - €10.0 bn
• Bad Exposures - €11.2 bn
• Total NPLs - €22.4 bn

2019 (CapMktsDay deck)

• Past Due - €1.4 bn
• Unlikely to Pay - €11.0 bn
• Bad Exposures - €10.8 bn
• Total NPLs - €23.4 bn

Then it would have been clear that the situation has deteriorated sharply in 2017, and that the PORTO, FINO and other writedowns may not turn out to have been "one-off":

 Deterioration between 1/1/17 and 30/9/17

• Past Due - €0.8 bn
• Unlikely to Pay - €0.5 bn
• Bad Exposures - €5.1 bn
• Total NPLs - €6.4 bn

What is really concerning is that, not only has the total of NPLs shot up again by over €6 bn in 2017, but that the category "Bad Exposures" has filled up again after being emptied (supposedly) by the FINO securitisation project and other charges, enabling a reduction in that line of €6.9 bn in Q4 2016.

Similarly the PORTO write-down has not been enough to ensure that the "carrying value" of all of Unicredit's Non-Performing Loans equates to their recoverable value.

Furthermore, some loans that were accounted as being "Performing" as at 31/12/16 have now been downgraded to "Non-Performing" status.

It is outrageous that these facts were glossed over in the slidedeck. We have written a longer study of the rights issue, the NPLs and other matters (available from our website).

The question of the status in law of the rights issue prospectus should now arise, as well as the regulatory protections that should be self-fulfilling for investors and obligatory on the bank's management. Luckily one does not own any shares in the organisation personally.

The difficulty for the holders of the ordinary and savings shares is who exactly is protecting them in this situation.

Where does the EBA (European Banking Authority) sit in all of this, and its Single Supervisory Mechanism? Don't they have to fulfil a duty towards end-users of financial services, like the shareholders in the banks that come under their purview, or do they just protect the creditors? What about the supervisors of the Milan and Frankfurt stock exchanges, on which the shares are tradeable?