World Economy

UniCredit to Raise $13.8b, Shed Bad Loans, Cut Jobs

UniCredit to Raise $13.8b,  Shed Bad Loans, Cut Jobs UniCredit to Raise $13.8b,  Shed Bad Loans, Cut Jobs

UniCredit SpA, Italy’s biggest bank, plans to raise €13 billion ($13.8 billion) in a rights offer, sell off bad loans and slash costs in its deepest overhaul to boost capital levels and profitability.

The bank is targeting €4.7 billion of net profit in 2019 with a return on tangible equity above 9%, the Milan-based company said in a statement on Tuesday. As part of the three-year strategy, the bank plans to shed an additional 6,500 jobs as it aims for €1.7 billion of annual cost savings, Bloomberg reported.

UniCredit Chief Executive Officer Jean Pierre Mustier, a 55-year-old Frenchman, in July took the helm of a lender burdened by a mounting pile of bad loans, record-low interest rates and Italy’s longest recession since World War II. The bank had the slimmest capital buffer among those deemed important to the financial system in the latest European stress tests.

UniCredit has struggled to build up capital, a task compounded by the bank’s complex structure after $60 billion of acquisitions it made in the past decade under previous management. To simplify the bank and boost buffers, Mustier is disposing of assets including the Pioneer Investments fund management business and its Polish unit, Bank Pekao SA.

“We are taking decisive actions to deal with our non-performing-exposure legacy issues to improve and support recurring future profitability," Mustier said in the statement.

UniCredit shares have lost about half of their value this year, closing at €2.424 in Milan on Monday, valuing the bank at €15 billion.

Capital Boost

The revamp will help UniCredit to increase its common equity Tier 1 ratio to more than 12.5% by 2019 from 10.8% at the end of September. The bank won’t pay a dividend for 2016 and targets a 20% to 50% payout ratio in subsequent years.

UniCredit’s third-quarter profit declined 12% to €447 million from a year earlier, while capital buffers increased through asset sales. This year, the bank has agreed to deals to raise about €8 billion by selling Pekao, Pioneer and its 30% stake in online lender FinecoBank SpA.

Part of the funds the bank is raising will cover losses from disposals of bad loans. UniCredit said it will set aside €8.1 billion for non-performing loans as it plans to move €17.7 billion of soured debt off its books for securitization and a subsequent sale. The bank said one-offs this quarter will total €12.2 billion.

The job reductions will bring the total cuts through 2019 to 14,000. Total net costs will drop to €10.6 billion from €12.2 billion in 2015, the bank said. The bank employed about 123,000 people at the end of September.


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