Italy’s Unicredit, which paid the most for a Ukrainian bank, raised eyebrows on Nov. 14 announcing nearly $14.5 billion in third quarter losses, writing down the entire goodwill on its Ukraine operations and joining the long list of banks that got their fingers burnt in the country.

Unicredit announced its biggest losses to date came on the back of massive write-downs, including 1.3 billion euros in Greek debt and all the goodwill of operations in Ukraine and Kazakhstan.

The gloomy news comes fours year after the top Italian bank paid more than $2 billion to purchase Ukrsotsbank, one of Ukraine’s largest banks.

Goodwill is an intangible asset, broadly defined as the difference between what a company pays for a business and its book value. It reflects possible synergies between the two, as well as the prospects of revenue and profit growth of the company being bought.

At present the amount being written down for Ukrsotsbank and Unicredit Bank, Unicredit’s two subsidiaries in Ukraine, is 490 million euros. In the case of the much larger Ukrsotsbank, the goodwill paid upon purchase represented 5 times the initial book value, reflecting the parent company’s hope to make profits on their purchase.

Commenting on the write-down, Vitaliy Vavryshchuk, banking analyst at Kyiv-based investment bank Concorde Capital, explained that the timing of the decision implied the bank still hoped to make profits in Ukraine.

“It is now clear they will not make the profit they expected to make,” he said.

At present, however, this does not mean Unicredit will pull out of Ukraine altogether.

“This does not affect Ukrsotsbank’s business,” said Vavryshchuk, pointing to the bank’s plan to rehash a merger between its two subsidiaries, which would indicate its desire to retain a strong regional presence. Rather, it is joining a long list of banks who have already written down the goodwill on their Ukrainian assets.

“They simply acknowledged that their investment in Ukraine was a failure [in terms of profitability]. It is a recognition of their past mistake,” said Vavryshchuk
But others warn an exit should not be ruled out.

In a note to investors Dragon Capital, an investment bank, said that while there was no direct indication of Unicredit’s decision to exit Ukraine, “such a scenario should not be ignored.” Moreover, they warned this would have negative implications for Ukrsotsbank stock.

The move comes amid a general drive by West European banks to improve their capital ratios and comply with new regulations. Indeed, rather than boost capital, as they have in the past, banks are increasingly shrinking balance sheets and moving away from riskier assets like Italian or French bonds, giving substance to fears over further rating downgrades.

Unicredit’s CEO Federico Ghizonni told a press conference that the bank would be moving out of investment banking, and planned to wind down 48 billion euros in assets in coming years, particularly in the U.S. and Asia.

He also announced the bank would try to raise 7.5 billion euros in capital, roughly covering the shortfall identified by the European Banking Authority last month. Failure to cover this shortfall, the organization warned, would force the bank to turn to national governments for support.
Europe’s crisis is also taking a toll on employment. Since the beginning of the year Barclays and UBS have both axed 3,500 jobs, while Credit Suisse cut 2,000 in July and recently announced plans to raise that by 1500.

Unicredit tops the dispiriting list with promises to cut around 6,100 jobs in the immediate future, with 1,300 additional cuts further down the line.

For the moment Ukrsotsbank’s results are still holding up, making it unlikely the bank would find itself on Unicredit’s asset disposal list, according to Dragon Capital.

Yet the Ukrainian bank’s high level of non-performing loans, at close to 40 percent, leave it volatile to external shocks, which are all but certain to come in the upcoming months.