UniCredit announced on Tuesday a major restructuring plan to raise €13 billion in capital to return the Italian bank to profitability, hoping that a balance-sheet cleanup and cost cuts will persuade investors that Italy’s biggest bank can restore profitability even without much revenue growth. As part of the three-year strategy, the bank plans to shed an additional 6,500 jobs, bringing the total to 14,000, as it aims for 1.7 billion euros of annual cost savings. The bank is targeting 4.7 billion euros of net profit in 2019 with a return on tangible equity above 9%, Milan-based UniCredit laid out in a presentation this morning.
UniCredit's new CEO 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. According to Bloomberg, the bank had the slimmest capital buffer among those deemed important to the financial system in the latest European stress tests.
“We are taking decisive actions to deal with our non-performing-exposure legacy issues to improve and support recurring future profitability," Mustier said in a statement.
The capital increase will take place in the first quarter of next year, Mustier said on a conference call with journalists Bloomberg reported. The CEO said he’s confident Monte Paschi’s efforts to raise capital will be resolved this month and will have “no impact” on his own bank’s fundraising. The UniCredit CEO also insisted political turmoil in Italy will put obstacles in the way of the plans. “The referendum was a No but it doesn’t change our business model,” Mustier told the Financial Times.
While the bank expects annual costs to drop, it sees revenue rising by just 0.6 percent per year through 2019. UniCredit sees falling net interest income, with growth coming from fees and commissions, it said in a presentation in London. “With almost no revenue growth in the foreseeable future, the plan is focused on cutting costs and improving the asset quality and capital levels,” Luigi Tramontana, an analyst at Banca Akros, said in a note to clients. “The rights issue stands at the top of the expectations, given the stronger-than-expected effort” to boost loan-loss reserves.
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