The 76-year-old billionaire media tycoon and center-right senator is accused of paying for sex with Karima El Mahroug, better known by her stage name ‘Ruby the Heartstealer’, when she was under 18, during the now notorious “bunga bunga” parties at his villa at Arcore near Milan in 2010.

However, prosecutors considered by far the more serious charge was that he abused the powers of his office during a separate incident by arranging for her to be released from police custody where she was being held on theft charges.

They requested 5 years imprisonment for that and a year for paying for sex with a minor. The verdict is expected on June 24.

“At Arcore there was a system of organized prostitution aimed at the satisfaction of the sexual pleasure of Silvio Berlusconi,” Milan chief prosecutor Ilda Boccassini said in a more than six-hour closing argument.

“There is no doubt that Ruby had sex with the defendant, from whom she received benefits,” she said.

Berlusconi has vigorously denied the accusations. El Mahroug, who staged a dramatic protest outside the Milan court last month, has always denied being a prostitute or having had sex with Berlusconi.

The sentencing request adds to a mass of legal problems facing Berlusconi, who last week lost an appeal against a four-year sentence for tax fraud in connection with his Mediaset broadcasting empire. Berlusconi will now launch a second and final appeal.

No final verdict will be enforced until the appeals process, which can last for years, is exhausted but Berlusconi’s legal sagas have created growing tension within the coalition government of Prime Minister Enrico Letta.

Berlusconi mounted a fierce attack on prosecutors over the weekend at a stormy rally in the northern city of Brescia that was attended by center-right members of the government including Interior Minister Angelino Alfano.

Letta’s own center-left Democratic Party (PD) sharply criticised Alfano’s presence at the rally, which it took as an endorsement of Berlusconi’s comments and the prime minister warned his coalition partners that there could be no repeat if the government was to survive.

Berlusconi’s campaign continued on Sunday with a lavish two-hour special on his own Canale 5 channel presenting his version of the “bunga bunga” evenings where prosecutors allege that sex parties involving a string of young women took place.

The program showed El Mahroug admitting that she had lied about certain aspects of her life to investigators but flatly denying any sexual relationship with Berlusconi and complaining at media representations of her as a prostitute.

It filmed the dining room and theatre at Berlusconi’s palatial villa near Milan and presented an array of witnesses who said the evenings there were convivial parties where he entertained guests by singing and telling stories.

(Editing by Louise Ireland)

UniCredit’s net profit came in at 449 million euros ($587.97
million), down 51 percent from a year ago. But this easily beat
an analyst consensus forecast of 156 million and first quarter
profits in 2012 had been boosted by a one-off gain.

The bank, the first of Italy’s retail banks to release
results for the quarter, said inflows of new bad loans had
fallen in its home market for the second quarter in a row.

“We know macroeconomic conditions are still very difficult
but there is some reason to be a bit optimistic,” CEO Federico
Ghizzoni told analysts in a conference call.

Like other Italian banks, UniCredit has been struggling to
keep a lid on mounting bad debts that have piled up as a result
of the longest recession in 20 years in Italy, the euro zone’s
third biggest economy.

The bank is cutting thousands of jobs to lower costs,
reorganising its Italian network and selling some assets in
central and eastern Europe to strengthen its finances.

After setting aside nearly 10 billion euros for souring
loans in 2012, UniCredit benefited from lower loan-loss
provisions in the first three months of the year.

Those charges stood at 1.2 billion euros in the period, down
73 percent from the fourth quarter of 2012 and 9 percent on an
annual basis.

The bank confirmed an outlook for slightly lower loan-loss
provisions in 2013 compared to last year.

“The results are good and the loan losses are low,” said
Alberto Gallo, credit strategist at Royal Bank of Scotland.

“What we are seeing is a two-tier banking system in Italy
and Spain, where the top two banks are doing well while the
smaller ones are stuck with a lot of non-performing loans,” he
said.

But some analysts pointed out that the fact the bank was
sticking to its 2013 outlook for loan-loss provisions meant the
decline in the first quarter was not a game-changer.

Overall, analysts expect bad debts at Italian banks to grow
throughout 2013 – UniCredit alone had 45.4 billion euros of
non-performing loans at the end of March, up 2.3 percent from
end-2012.

The bank’s results, also helped by strong trading income,
marked a return to profit from the fourth quarter of last year,
when UniCredit posted a 553 million euro loss.

Ghizzoni said markets were still too volatile for the lender
to present new financial targets, which the bank has said will
be lower than previously stated because of the prolonged
recession.

The bank said its Core Tier 1 ratio – a key measure of
financial strength – stood at 9.46 percent at the end of March,
and at 9.64 percent taking into account a series of recent
disposals. The ratio stood at 9.2 percent at the end of 2012.

($1 = 0.7637 euros)

(additional reporting by Francesca Landini, editing by Jane
Merriman)

The “Alexandria” deal is one of three trades at the heart of
a criminal probe at Banca Monte dei Paschi di Siena, which
booked losses of 730 million euros in 2012 after saying details
of the complex derivatives deals had only just come to light.

Judge Ugo Bellini on Friday rejected an order issued by
prosecutors in Siena wanting to seize around 1.8 billion euros
($2.3 billion) of assets from Nomura as part of the
probe.

In a document explaining his decision, the judge challenged
a number of allegations made by the prosecutors, including one
that Nomura had reaped abnormal gains from the “Alexandria”
contract it entered with Monte Paschi in 2009.

“One cannot at this stage fail to observe the lack of any
objective element to consider unjustified or disproportionate
economic benefits for Nomura stemming from the overall
transaction with Monte dei Paschi,” he said in the document,
reviewed by Reuters.

The Siena prosecutors plan to appeal his ruling, according
to judicial sources.

Monte dei Paschi, which is seeking 700 million euros in
compensation from Nomura and two former executives, said on
Monday it did not think its own claim had been weakened by the
judge’s ruling.

“Our compensation claim is well founded,” Monte Paschi
Chairman Alessandro Profumo told reporters after a shareholder
meeting approved the lawsuit.

The Tuscan bank is also seeking 500 million euros in
compensation from Deutsche Bank for a derivative deal similar to
the one made with Nomura. Both Nomura and Deutsche Bank have
denied any suggestion of wrongdoing.

The prosecutors’ seizure order, issued on April 15, was
aimed at preventing Monte Paschi from putting up more cash with
Nomura to meet the collateral requirements of the “Alexandria”
trade.

The magistrates alleged Japan’s largest broker colluded with
former managers of Monte Paschi, the world’s oldest bank, to
conceal losses and set up huge hidden bets on Italian government
bonds that helped drive the Italian bank close to collapse.

The prosecutors and current management at the Siena-based
bank also allege that Nomura earned some 88 million euros in
“hidden” fees from the deal.

Nomura says it has done nothing wrong and will defend itself
vigorously against any allegation of wrongdoing.

The prosecutors said that as of April 5 the Tuscan bank had
deposited 1.87 billion euros with Nomura as collateral under the
deal.

Any additional payments due, temporarily frozen by the
seizure order, have now resumed, a judicial source told Reuters.

Assets worth 140 million euros that had already been seized
from the Japanese bank were released under the judge’s latest
ruling.

(Editing by Greg Mahlich and Dan Grebler)

The “Alexandria” deal is one of three trades at the heart of a criminal probe at Banca Monte dei Paschi di Siena, which booked losses of 730 million euros in 2012 after saying details of the complex derivatives deals had only just come to light.

But Judge Ugo Bellini on Friday rejected an order issued by prosecutors in Siena wanting to seize around 1.8 billion euros ($2.3 billion) of assets from Nomura (8604.T: Quote, Profile, Research, Stock Buzz) as part of the probe.

In a document explaining his decision, the judge challenged a number of allegations made by the prosecutors, including one that Nomura had reaped abnormal gains from the “Alexandria” contract which it entered into with Monte Paschi in 2009.

“One cannot at this stage fail to observe the lack of any objective element to consider unjustified or disproportionate economic benefits for Nomura stemming from the overall transaction with Monte dei Paschi,” he said in the document, reviewed by Reuters.

The Siena prosecutors plan to appeal against his ruling, according to judicial sources.

The seizure order, issued on April 15, was aimed at preventing Monte Paschi from putting up more cash with Nomura to meet the collateral requirements of the “Alexandria” trade.

The magistrates alleged Japan’s largest broker colluded with former managers of Monte Paschi, the world’s oldest bank, to conceal losses and set up huge hidden bets on Italian government bonds that helped drive the Italian bank close to collapse.

The prosecutors and current management at the Siena-based bank also allege that Nomura earned some 88 million euros in “hidden” fees from the deal.

Nomura says it has done nothing wrong and will defend itself vigorously against any allegation of wrongdoing.

The prosecutors said that as of April 5 the Tuscan bank had deposited 1.87 billion euros with Nomura as collateral under the deal.

Any additional payments due, temporarily frozen by the seizure order, have now resumed, a judicial source told Reuters.

Assets worth 140 million euros that had already been seized from the Japanese bank were released under the judge’s latest ruling.

(Editing by Greg Mahlich)

Prosecutors in Italy accuse Japan’s largest broker of colluding with former managers of Monte dei Paschi, the world’s oldest bank, to set up huge hidden bets on Italian government bonds that helped drive the Italian bank close to collapse.

Nomura says it has done nothing wrong. It said on Tuesday none of its assets had been seized in connection with the Monte dei Paschi probe and it would take all appropriate measures to protect its position.

Shares in Nomura, Japan’s biggest brokerage, closed down 2.33 percent on Wednesday amid uncertainty over the impact of the Monte dei Paschi scandal. The Italian bank, which has shed nearly a third of its value in the past 12 months, was trading 0.41 percent higher.

The seizure order was aimed at preventing Monte dei Paschi from sending more cash to Nomura as collateral for the “Alexandria” trade, a huge bet on Italian government debt made more costly by an interest rate swap that forces the Italian bank to take losses when rates are lower than expected.

The funds are held in accounts outside Italy, which means the Siena-based prosecutors are trying to seize the money through “Target 2″, the interbank payment system that links European banks through the central banks of individual countries that use the euro, a judicial source told Reuters on Wednesday.

The source said the Bank of Italy had contacted the Bundesbank to block a Nomura account held with Citigroup (C.N: Quote, Profile, Research, Stock Buzz) in Frankfurt, but had not yet heard back from the German central bank.

Prosecutors are also seeking to seize funds held on behalf of Nomura in London accounts with Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz). Neither Citigroup nor Bank of America are part of the investigation. Citigroup declined to comment. Bank of America did not return a call seeking comment.

The prosecutors’ seizure warrant, seen by Reuters, says that between Feb 19 and April 5, Monte dei Paschi deposited more than 370 million euros with Nomura as collateral to help cover mounting losses. In total, it had 1.87 billion euros on deposit.

“This requires urgently stemming this landslide of money towards Nomura that is increasing by the day,” the prosecutors said in the document, explaining why they did not wait for a judge to authorize the seizure, made public on Tuesday.

The prosecutors’ warrant says that by freezing the derivative contract, they will be able to block all related payments.

Part of the 1.95 billion euros figure is some 88 million in “hidden” fees the prosecutors and Monte dei Paschi say Nomura received from the deal.

PARTIAL NATIONALISATION

Monte dei Paschi, Italy’s third-largest bank, received a state bailout of 4 billion euros in February to plug a capital shortfall exacerbated by derivative deals. It faces the prospect of partial nationalization from next year.

Italian prosecutors are investigating Nomura’s former top executive in Europe, Sadeq Sayeed, and its managing director in fixed income sales for the Europe, Middle East and Africa region, Raffaele Ricci, over allegations of aggravated fraud and usury.

Sayeed, who left Nomura in March 2010, denied the allegations. Ricci did not return calls for comment.

The seizure warrant said Nomura “took advantage of Monte dei Paschi’s economic and financial difficulties” when it negotiated a restructuring of the Alexandria deal in 2009.

The prosecutors allege that the Japanese bank colluded with former managers at the Italian bank to conceal losses and engineered “disproportionate and abnormal” contract clauses at the expense of the Tuscan lender.

“All this determined, is determining now and will continue to determine in the future…huge negative consequences for the liquidity and operative functioning of Monte dei Paschi,” the document said.

SWELLING LOSS

The Alexandria trade involved the purchase by Monte dei Paschi of Italian government bonds for 3 billion euros financed through a long-term repurchase agreement with Nomura.

The trade also involved an interest rate swap that according to the prosecutors ensured Nomura effectively received a 5 percent coupon on the government bonds, while the interest rate received by Monte dei Paschi was 0.34 percent.

The transaction had an initial negative fair value of 308 million euros for Monte dei Paschi that was not revealed in the bank’s financial accounts, including “hidden” fees for Nomura, the prosecutors said.

As the decline in the bonds’ value during the euro zone debt crisis swelled Monte dei Paschi’s losses on the trade, the Tuscan lender was forced to deposit as much as 2.45 billion euros as collateral in mid-May 2012, they said.

A judicial source told Reuters the prosecutors’ seizure order had effectively frozen the Alexandria transaction and all related payments had been suspended. A judge now has around 10 days to decide whether to ratify the prosecutors’ move.

Monte dei Paschi booked a pretax loss of 730 million euros in 2012 linked to the Alexandria trade and a similar deal with Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) known as Santorini.

When asked whether the prosecutors could also take steps against Deutsche Bank, the judicial source said their examination of the Alexandria trade was at a more advanced stage than that of Santorini but that they could consider such a move. ($1 = 0.7616 euros)

(Additional reporting by Andreas Framke in Frankfurt and Steve Slater in London; Editing by Carmel Crimmins and Peter Graff)

Its 2012 loss of 3.2 billion euros ($4.1 billion) compares
with an average estimate for a loss of 2.5 billion in a Reuters
poll of eight banks and brokerages and follows a 4.7 billion
loss in 2011.

Italy’s third-biggest lender, which received a 4 billion
euro ($5.1 billion) state bailout last month, said it had set
aside 2.7 billion euros to cover bad debts, including 1.37
billion in the fourth quarter alone, as Italy battles through
its longest recession in two decades.

The fourth-quarter figure was double the estimate of most
analysts surveyed by Reuters and followed an industry-wide audit
of bad debts by the Bank of Italy.

The Tuscan lender, the world’s oldest bank, also booked a
730 million euros pretax loss due to the restatement of three
derivatives trades carried out by its previous management, whose
full impact was only recently disclosed.

“It’s been a difficult year,” CEO Fabrizio Viola, appointed
in 2012 to turn around the bank’s fortunes, told analysts on a
conference call.

He said the review of the bank’s financial portfolio had
been completed and there were no more skeletons in the closet.

HARD HIT

Monte dei Paschi was hit hard by the euro zone debt crisis
because of its large holdings of Italian government bonds and
was the only Italian bank that failed to meet tougher capital
requirements set by European regulators last year.

At the end of 2012 it had 25.8 billion euros of Italian
government bonds – the highest amount among Italian banks
relative to net assets – with an average maturity of 6.7 years.

The bank’s problems deepened when losses from derivatives
trades made in 2008 and 2009 began to emerge in January,
prompting prosecutors who were already investigating it over the
costly acquisition of a smaller rival in 2007 to widen their
probe to those deals.

But even excluding the impact of those trades, the bank’s
2012 accounts showed a weak bottom-line performance.

Revenue fell 6.2 percent in the year due to a steep fall of
18 percent in net interest income, a key measure of how much
money a bank makes from its core business.

Customer deposits and securities issued dropped by 7.5
percent year-on-year, with the bank reporting a decline in
current or checking accounts and short-term investments
particularly from institutional clients.

This was half the rate of decline in customer deposits seen
in the first nine months of 2012, but still underscored the
challenges faced by the lender even before the derivatives
scandal erupted this year.

Gross problematic loans totalled 29 billion euros.

The bank also said costs had fallen by 3.7 percent on the
year. The bank, which has announced 4,600 job cuts and 400
branch closures by 2015, said 1,660 employees would leave the
company by the first half of 2013 and 200 branches had already
been shut.
($1 = 0.7788 euros)

(Editing by Elaine Hardcastle and David Holmes)

Defaults by small and medium-sized enterprises (SMEs), easily
the biggest employers in Spain and Italy, are rising at a
worrying clip, spelling trouble for the banks and two countries
at the heart of Europe’s debt crisis.

“You can be sure that if these companies’ bad debts rise,
you’re going to see more bad loans to families, and credit card
bills that won’t be paid,” said Javier Santoma, finance
professor at Spain’s IESE business school.

The ability of Italy and Spain, which account for 28 percent
of the euro zone economy compared with Cyprus’s 0.2 percent, to
pull themselves out of crisis and avoid full-blown bailouts
depends on the health of their banks; weak banks conserve
capital rather than lend to get the economy moving.

Profits at Spain’s top three lenders Santander,
BBVA and Caixabank fell an average 60
percent in 2012 due to steep government-enforced provisions for
property losses. Writedowns of nearly 24 billion euros at
state-owned Bankia led to a record 19.2 billion euro
loss.

In Italy, the two biggest banks, Intesa Sanpaolo
and UniCredit, set aside a combined 14 billion euros
in 2012 to cover bad loans. Smaller lenders also had to increase
provisions after the central bank conducted simultaneous audits
of around 20 institutions.

Banco Popolare, Italy’s fourth biggest, issued a
profit warning after the audit prompted 684 million euros of
loan loss provisions in the fourth quarter, more than the total
it set aside in the first nine months of the year.

PROVISIONS

The Italian banking association has said the pace of growth
in bad loans, which has been climbing at an annual rate of 16-17
percent in recent months, should ease later in the year, based
on economic recovery in the second half. That looks remote after
the government this month said GDP would shrink 1.3 percent this
year, adjusting a previous forecast for a 0.2 percent fall.

“Consumption levels, retail sales, industrial activity have
gone back to pre-euro levels, and the banks still have not fully
taken into account the fall in the property market. I doubt that
if they foreclose today … they would get much of their money
back,” said Ronny Rehn, analyst at Keefe, Bruyette & Woods.

“So I think we will see a lot more provisioning for many
years. Also, there is a lot of non-competitive companies that
will end up exiting the market and defaulting, entailing more
losses for the banks.”

Spanish banks are better protected against SME losses after
Madrid used 41 billion euros of a total 100 billion euros of
European aid to prop up its weakest lenders.

The government has ruled out another round of special
provisions, and analysts said if more capital was required it
would be covered by the remaining European aid.

“It could be that one bank here or there needs more capital,
but it probably won’t be a system-wide issue,” said Erwin Van
Lumich, a banking analyst at Fitch ratings agency.

“Bad debts could peak in the course of this year, or
slightly into 2014, as there is always a delayed effect for
these types of statistics.”

Spanish banks face 25 billion euros of losses from 2012-2014
on non-property-related SME exposure of 237 billion euros on a
base case scenario set by consultants Oliver Wyman last year.

On an adverse scenario, that hits 39 billion euros, compared
with losses of 65 billion and 97 billion euros in base and
adverse scenarios on real estate exposure of 227 billion.

NO SAFETY NET

Behind the figures are struggling people.

Raffaele Balzano faces eviction in days from his two-star
hotel in Pistoia, Tuscany, which was forced to close last year.
Power and water were cut off when he couldn’t pay the bills.

“In 2011 it all came to a head. I had a debt of 26,000 euros
with the bank, and they would not give me any new credit lines
to try and stay afloat, plus I also owed some 50,000 euros to
suppliers which I could not pay,” Balzano told Reuters.

“No one has helped me, not the government, the banks or any
trade unions. We, the small businessmen, have no safety net
whatsoever. I’ve lost everything.”

One in 10 Spanish loans was in arrears for three months or
more in December, and research firm Axesor said February was the
worst month since 2008, with more than 1,000 companies filing
for creditor protection, up 82 percent on a year earlier, even
though banks roll over debt for many struggling borrowers.

Around 1,000 companies a month went bust last year in Italy,
and as of January, 7.4 percent of loans were non-performing, the
highest in nearly 13 years and much worse than France’s 4.1
percent and Germany’s 3 percent. At the other end of the scale,
the Greek bad loan ratio was 22.5 percent at end-September 2012.

With Italy and Spain expected to contract by 1.3 percent and
1.5 percent this year under the weight of government austerity
programmes, SME bad debts are set to climb, meaning defaults are
more likely in consumer credit and mortgages.

Unemployment, already a record 26 percent in Spain and 11.7
percent in Italy, the worst since the current statistical series
began in 1992, will also climb as small firms fire staff.

NO MARRIAGE, NO MORTGAGE

Fed up being ignored by banks and the Italian government,
Giuseppina Virgili set up an association called the “Invisible
Small Entrepreneurs” to advise businesses in trouble.

“The banks have turned off the credit tap for us small
entrepreneurs. They don’t give us money, they don’t trust us. We
are no longer welcome customers,” Virgili told Reuters.

“They are scared that we can’t pay them back, so they treat
us as if we were the cause of the economic crisis, even when we
should be part of the solution.”

In Spain, a breakdown of the country’s regional savings
banks, which overextended themselves in the property boom, has
left many of their small clients without financing.

“We want to lend, but those that really need the funding are
the SMEs that used to borrow from the savings banks. We don’t
know their track record, and for now these companies are
isolated, which has created a shock in terms of lending,” a
senior Spanish banker said, on condition of anonymity.

The government is trying to get various state-backed credit
schemes going, including 45 billion euros in SME financing, plus
tax breaks for these companies.

But bankers complain of a lack of “solvent demand”.

“We have not seen a healthy demand for new credit,” Victor
Massiah, CEO of Ubi Banca, said this month after
Italy’s fifth biggest bank by branch numbers reported a nearly
40 percent rise in loan writedowns for 2012.

“Unemployment is rising, young people are living with their
parents, they are not getting married, and they are not buying a
house – the demand for private mortgages has halved.”

According to the average estimate in the poll of eight analysts, the bank will report a second year of big losses when it releases results for 2012 on Thursday, following a 4.7 billion euro loss in 2011.

Monte dei Paschi, which last month received a 4 billion euro state bailout to boost its weak capital base, has said losses from three derivative trades carried out under its former management wiped 730 million euros from its net assets.

Several analysts included that figure as a net loss in their full-year estimates and said the bank was also likely to increase provisions for bad debts by around 650 million euros in the fourth quarter, in line with other Italian lenders.

“I think they’ll take the full hit on the derivatives in the fourth quarter to try and put that problem behind them,” an analyst who asked not to be named said.

Monte dei Paschi was hit hard by the euro zone debt crisis because of its large holdings of Italian government bonds and was the only Italian bank that failed to meet tougher capital requirements set by European regulators last year.

Its problems deepened when losses from past derivatives trades began to emerge in January, prompting prosecutors who were already investigating it over the costly acquisition of a smaller rival in 2007 to widen their probe to those deals.

“Even if they manage to draw a line under the derivatives, there is still too much uncertainty hanging over the bank,” Roberto Lotici, a fund manager at Banca Ifigest in Milan, said.

“It’s difficult to see how they can generate enough profits to pay back the state aid. They have a high level of bad loans, and we still don’t know what the impact of the derivatives scandal has been on their deposits,” he added.

Two sources with direct knowledge of the matter told Reuters last month that there had been a big fall in deposits in the last week of January because of the scandal but that the situation had returned to normal by mid-February.

On Wednesday Italian tax police searched the Milan offices of Japanese bank Nomura (8604.T: Quote, Profile, Research), which carried out one of the derivatives trades being scrutinised. Nomura declined to comment.

(editing by Jane Baird)

The bank’s director general Ennio La Monica told analysts
proceeds from asset sales could provide most of the money.

“We think that (with the asset sales) we can reasonably get
very close to 800 million euros.” As a result, he said the
capital hike would be “very marginal.”

The bank’s chairman, Giovanni Berneschi, initially said on
Wednesday the bank needed a capital increase of 400 million
euros, which would likely mean a big dilution for Carige’s main
shareholder, a charitable foundation with close ties to local
politicians.

Berneschi later said in an emailed statement he hoped the
capital increase would be as small as possible.

The bank, based in Genoa, first revealed its capital
shortfall last month, prompting the Italian press to draw
parallels with Monte dei Paschi, the troubled Tuscan
bank, which also has a charitable foundation as its main
shareholder.

Monte Paschi had to request 4 billion euros in state aid
last month after failing to meet tougher capital rules set by
European regulators and after disclosing losses of 730 million
euros linked to risky derivatives trades.

La Monica said Banca Carige planned to sell its two
insurance units, which he said were worth between 400 million
and 600 million euros. Real estate assets could also be put up
for sale, he said.

The bank, which has a market capitalisation of 1.3 billion
euros, said late on Tuesday it made a 2012 loss of 63.2 million
euros. It scrapped its dividend and said it would cut bonuses
for its top managers to comply with recommendations from the
Bank of Italy.

The central bank has told banks with a low Core Tier 1
ratio, a key measure of financial strength, not to pay a
dividend. Carige’s Core Tier 1 stood at 6.7 percent at the end
of 2012, well below the 9 percent minimum its bigger rivals have
been told to meet.

Less than a month ago, Carige had said it still planned to
pay an adequate dividend for 2012.

The Carige foundation has a 47 percent in the bank and in
the past used dividends to fund social projects locally. In
2011, the bank’s dividends represented 85 percent of the
foundation’s revenues.

The prospect of a large capital increase weighed on Carige’s
shares, which fell 3.5 percent to 0.57 euros. The stock has lost
44 percent of its value in the past year.

($1 = 0.7760 euros)

(Reporting by Andrea Mandala and Silvia Aloisi. Additional
reporting by Gianluca Semeraro. Editing by Jane Merriman)

The bank also announced that it is selling its Kazakh unit
ATF Bank and will review its business targets through
to 2015 in light of the “exceptionally difficult” economic
environment.

Almost half of the 2012 writedown related to the last three
months of the year. That 4.6 billion euro slice was more than
three times the amount set aside by rival Intesa Sanpaolo
for the final quarter and compared with 1.42 billion
euros in the same period a year earlier.

Chief Executive Federico Ghizzoni told analysts that the
drastic increase, which is almost entirely down to the Italian
bad loan portfolio, was a voluntary decision and not the result
of a Bank of Italy audit.

The central bank has been carrying out simultaneous
inspections of Italian lenders and asked several – particularly
smaller banks – to boost their provisions for bad loans.

Ghizzoni said the Bank of Italy had only asked UniCredit to
make a “marginal adjustment” of about 60 million euros in its
loan writedowns.

“Our balance sheet is definitely stronger than it was a year
ago,” he said, adding that the bank now had the highest coverage
ratio for Italian bad debts among domestic lenders.

However, reflecting a cautious mood among bankers, Ghizzoni
said that there was no point in releasing revised business
targets while markets remain volatile.

“It makes no sense to come to you with a new plan; we need
more clarity on the macro front,” he said.

FORECASTS MISSED

Charges against loan losses this year should come “slightly
below” the 2012 level, UniCredit said, forecasting a drop in
2013 net interest income – a key measure of how much money a
bank makes from its core business – after a 6 percent decline in
2012.

Because of the high provisions, UniCredit posted a 553
million euro loss in the fourth quarter of 2012, against a
consensus estimate of a 173 million euro loss in the bank’s poll
of analysts.

Full-year net profit was 865 million euros, missing the
analysts’ 1.24 billion euro consensus forecast.

Analysts said that the thorough clean-up of the loan
portfolio was positive, but the outlook remained challenging.

“UniCredit only expects a slight improvement from the
underlying loan-loss charges,” said Ronny Rehn at Keefe,
Bruyette & Woods. “We look for 16-25 percent consensus cuts on
these numbers.”

The bank said it had reached an agreement to sell ATF Bank
to a Kazakh entrepreneur and Ghizzoni said the price would be
close to ATF’s book value of $550 million. UniCredit bought ATF
for $2.1 billion in 2007 at the height of the credit boom.

UniCredit said that because of the sale it had booked a 260
million euro one-off charge in the fourth quarter.

On a brighter note, after scrapping its 2011 dividend
following a net loss of 9.2 billion euros on big goodwill
writedowns, UniCredit said it would make a payout of 0.09 euros
per share for 2012.

The bank also said it would receive a 1 billion euro
extraordinary dividend from its German unit, in addition to a
1.5 billion euro ordinary payout, boosting its ability to inject
capital where needed in the group.
($1 = 0.7704 euros)

(Editing by David Holmes and David Goodman)