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UniCredit approves significant capital-strengthening measures to reach 6.7% Core Tier 1 ratio at the end of 2008 and reviews its full-year earnings forecast

Today, UniCredit Board of Directors approved a series of measures which will significantly reinforce its capital position. The plan envisages capital-strengthening actions for an aggregate amount of up to €6.6 billion. UniCredit estimates that its Core Tier 1 ratio Basel II (which was 5.7% at the end of June 2008) will reach a level of around 6.7% by year end, compared with its previous target of 6.2%, as a result of the combined effect of the capital-strengthening actions being announced today, the implementation of a series of cost-cutting measures, and the execution of other extraordinary transactions currently underway or envisaged.
The past three weeks have been extremely challenging for the entire financial sector resulting in unprecedented volatility and pressure, also on UniCredit shares. In such scenario, the capital target of 6.7% Core Tier 1 at the end of 2008 is based on expected Group net earnings of about €5.2 billion, equivalent to approx. €0.39 EPS prior to the capital increase. The gap versus the previously announced target of €0.52 EPS is attributable both to deteriorated financial markets conditions, which have affected the performance of market-related activities and to the delay in UniCredit assets disposal plan.
The capital-strengthening initiatives include:

  • Payment of dividends related to our 2008 earnings in new shares for an expected aggregate amount of €3.6billion;
  • Placement of a €3billion issue of Core Tier 1 "Convertible Equity Instruments" ("CASHES" or "instruments") with a group of institutional investors, the size of which will be reduced depending on shareholders' take-up of the rights offering.

As the issuance of the new ordinary shares underlying the instruments must be approved at a UniCredit Shareholders' meeting and offered to the current shareholders on a pre-emptive basis, the UniCredit Board of Directors has resolved to call an Extraordinary Shareholders' Meeting in November 2008, with a view to completing the transaction as soon as practicable within the first quarter 2009, subject to regulatory approvals. The Extraordinary Shareholders' Meeting will be asked to approve a capital increase of 973 million new ordinary shares at a price of €3.083 per share (the reference price of the shares at the close of the market on the Italian Stock Exchange on Friday, October 3, 2008), of which €2.583 represents share premium.

To the extent that the shareholders exercise their rights to subscribe for such shares, the volume of the CASHES to be issued will be reduced pro-rata.

The CASHES are securities that are convertible at the investor's option into new UniCredit ordinary shares to be issued following receipt of the necessary authorizations. The instruments have been priced with a coupon of 3-month Euribor plus 450bps, in line with terms of recent bank capital financing, and an exchange price fixed at €3.083, the reference price of the shares at the close of the market on the Italian Stock Exchange on Friday, October 3, 2008. They will be convertible at any time after 40 days from their issue date and will be automatically converted into UniCredit ordinary shares if the UniCredit share price exceeds 150% of the exchange price (i.e., €4.6245) over a set period following the 7th anniversary of their issuance.

The instruments offering met a significant level of demand; UniCredit core shareholders and other institutional investors committed to subscribe up to €3 billion, of which €2 billion already approved by their relevant bodies, while the remaining amount of €1 billion is expected to obtain such approval in the forthcoming days.

UniCredit Markets & Investment Banking, Mediobanca and Merrill Lynch International advised on the overall capital strengthening measures, on the structuring of the instruments and acted as private placement agents of the CASHES. They also have been mandated to manage the rights offering.

Finally, the Board will propose at the forthcoming Shareholders' Meeting the authorization to dispose of the existing treasury shares at market conditions.
Milan, 5 October 2008

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