Unicredit Restructuring

Desperate Times, Desperate Measures

UniCredit SpA Chief Executive Officer Jean Pierre Mustier Announces Plans For $13.8 Billion Stock Sale
Bold measures at Unicredit. Source: Bloomberg

Faced with a financial crisis at home and a collapsing share price, Italy’s biggest bank has responded in a big way.

Under new management, Unicredit on Tuesday announced an aggressive set of measures to strengthen the bank’s capital position and boost its earnings by slashing thousands of jobs.

Unicredit will raise €13 billion, or $13.8 billion, by selling new shares to bolster its equity cushion against financial shocks, set aside €8.1 billion to cover bad loans and sell a €17.7-billion portfolio of problematic debt.

The bank plans to cut 14,000 jobs by 2019, making it the latest of Europe’s many once-dominant banks to announce a major downsizing this year.

The bank employed 101,000 people at the end of 2015, meaning 14 percent of positions will disappear in three years – double the number that had been announced a year ago.

That also means more job losses in Germany, Europe’s largest economy, where Unicredit owns Munich-based commercial and retail bank Hypo Vereinsbank. The Italian bank cut 2,372 of 16,310 posts at Hypo Vereinsbank at the end of last year.

Investors cheered the announcement, which is the brainchild of Unicredit’s new chief executive, Jean-Pierre Mustier, a former paratrooper who is clearly not ashamed of drawing that parallel. In fact, the bank’s new restructuring is all about military precision, he said.

“We are taking decisive actions to deal with our non-performing exposures’ legacy issues to improve and support recurring future profitability,” Mr. Mustier said in a statement.

Unicredit’s shares rose more than 15 percent and were at €2.80 per share at 10 a.m. on Wednesday in Milan. The bank’s stock had lost about half of its value during 2016.

In July, French-born Mr. Mustier took over to turn things around at Unicredit, which is saddled with a portfolio of bad loans and a sluggish domestic economy that is hampering growth.

The restructuring, if successful, should also help stem worries about Italy’s banking sector, which as a whole has relatively low capital levels and a high amount of bad loans because of to Italy’s economic stagnation and political uncertainty after prime minister Mario Renzi resigned this month.

There are also fears the entire sector will be pulled into a state-backed rescue of Monte dei Paschi di Siena, the oldest bank in the world.

Germany’s banking sector, while maybe not in as deep a crisis, is in the midst of its own struggles with profitability, which explains the need to cut back in at Munich-based HVB subsidiary as well.

HVB Chief Executive Theodor Weimer has already done about half the work. By the middle of this year there were only 15,000 people working at the bank. Financial sources said Mr. Weimer had been consulted about the plans to accelerate job cuts and stands behind them.

At least HVB’s future with Unicredit is secure for now. Mr. Mustier in a conference call with investors on Tuesday rejected speculation the bank might consider selling its German subsidiary. “We are happy with HVB,” he said.

Mr. Mustier added that selling HVB wouldn’t really bolster the bank’s core capital reserves – Unicredit will be turning to markets for that.

The bank plans to raise €13 billion in fresh capital by June. Much of the money will go towards the restructuring, which is expected to cost €12.2 billion, but the cash injection will also help Unicredit raise its core capital ratio to more than 12.5 percent by 2019 – up from 10.8 percent in the third quarter of this year – and placate concerns of the European Central Bank, which put Unicredit near the bottom of its list in a stress test of European banks this year.

 

Gilbert Kreijger is an editor with Handelsblatt Global, covering companies and markets. Kathrarina Slodczyk is a Handelsblatt correspondent in London and Michael Maisch is a deputy finance editor in Frankfurt. To contact the authors: kreijger@handelsblatt.com, slodczyk@handelsblatt.com and maisch@handelsblatt.com

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