UniCredit posted a record €14 billion ($19 billion) loss yesterday due to huge writedowns on bad loans and past acquisitions as it moved to clean up its balance sheet ahead of an industry-wide health check by European regulators.

Italy’s biggest bank by assets said full-year provisions against losses from loans totalled €13.7 billion in 2013, with €9.3 billion in the fourth quarter alone.

“This is a jaw-dropping clean-up,” said one banking analyst, who declined to be named. “The company is taking €9.3 billion of loan losses. We had [forecast] €4.5 billion and thought we were high.”

Yet UniCredit shares rallied after an initial drop, as the bank said it did not need to carry out a capital increase and felt it had done more than required to get a clean bill of health by regulators when the European Central Bank conducts its asset quality review of the euro zone's 128 biggest banks.

UniCredit’s share price was up 7 per cent at €6.46, its highest level since October 2011 and extending gains this year to 20.3 per cent, compared with a 4 per cent rise in the Stoxx Europe 600 banking sector index.

"I believe the group has turned the page. We could have staggered the losses over several years. We decided to take them all in one year," chief executive Federico Ghizzoni told reporters.

In addition to the bad loan provisions the bank also booked in goodwill impairments totalling €9.3 billion as it effectively wrote down the entire value of its acquisitions since 2005. That year UniCredit became a major force in Europe through the purchase of Germany’s HypoVereinsbank and its extensive operations in Central and Eastern Europe.

The massive net loss, one of the worst suffered by a European bank since the beginning of the financial crisis, was partly mitigated by a €1.2 billion net capital gain recorded for the revaluation of UniCredit’s stake in the Bank of Italy, whose accounting treatment is still under discussion. – (Reuters)