Strategy
Unicredit's Capital Rebuilding May Be Hit By Madoff Victim Claims

Moves by the US trustee seeking to recover billions of dollars for victims of Bernard Madoff could hamper the ability of UniCredit to increase key capital ratios, according to a Reuters report.
The Milan-headquartered bank has been named in a lawsuit seeking $19.6 billion alongside Sonja Kohn - who the suit described as Madoff's "criminal soul-mate" - and 55 other defendants.
In recent weeks, there have been a number of lawsuits and actions relating to victims of Madoff, who was jailed more than a year ago for a $65 billion Ponzi scheme fraud, which hit dozens of banks, investment firms and wealthy individuals. Among the firms affected were private banks: the issue has led to soul searching in the industry on whether more should have been done to spot the fraud and report it.
Kohn is the founder of Vienna-based Bank Medici, a small private bank 25 per cent owned by UniCredit's Bank Austria.
"Of course, the trustee will try to get the money back from the deep pockets, which is UniCredit, not Bank Medici," Edouard Fremault, senior analyst at Brussels' Deminor International, a consultancy representing 2,500 European investors seeking damages from the Madoff fraud, is quoted as saying.
But potential provisions to cover losses from the lawsuit could set back UniCredit's efforts to up its capital ratios, at present lagging European peers, analysts said.
The lawsuit filed this month by the US bankruptcy trustee for Madoff's firm dwarfs similar Madoff cases against HSBC, JP Morgan or UBS and comes as UniCredit faces a core home market recovering only slowly from the worst economic downturn since World War Two, the report continues.
Evolution Securities has estimated that each $1 billion in provisions for a potential settlement would cut 17 basis points from UniCredit's 8.61 per cent Core Tier 1 ratio, a key measure of bank capital that needs strengthening in view of tougher new global bank capital rules, the report goes on.
"Any impact coming from potential provision by UniCredit to deal with the Madoff issue would be significant, because the bottom line is very, very weak," said one analyst who spoke on condition of anonymity.
UniCredit has already asked shareholders twice for cash during the global credit crisis and is redefining its strategy after the acrimonious ousting of long-term chief executive Alessandro Profumo, as reported in WealthBriefing.
In early November, it was reported that Unicredit is set to slash half the jobs at its Luxembourg operation as a result of selling the majority of its private banking activities in the country to DZ Private Bank Luxembourg. The cuts amount to 77 jobs.