Drastic Cuts

Unicredit Trims the Fat

Italy's largest bank Unicredit has some lean years ahead. Credit: Bloomberg
Italy's largest bank Unicredit has some lean years ahead.
  • Why it matters

    Why it matters

    UniCredit is just the latest of several big European banks to announce a restructuring to boost capital and increase flagging profits.

  • Facts

    Facts

    • The restructuring program is aimed at saving €1.6 billion in costs in the next three years.
    • UniCredit’s CEO pledged to refrain from any more capital hikes and to raise the core capital ratio to 12.6 percent.
    • UniCredit’s German operations will escape comparatively unscathed with 1,200 layoffs. Job cuts in Austria and Italy will be much bigger.
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    Audio

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Wednesday was a day of truth for Unicredit. Italy’s largest and most international bank announced a drastic restructuring to save €1.6 billion, or $1.72 billion, in the next three years.

Unicredit Chief Executive Federico Ghizzoni presented shareholders with a plan to slash 18,200 jobs at the troubled bank, with about 6,000 layoffs coming from the sale of asset management unit Pioneer and the bank’s Ukraine operations.

The makeover is even more radical than the 10,000 job cuts expected, but won’t affect Unicredit’s German subsidiary Hypo-Vereinsbank that much. About 1,200 administration jobs there will be lost, which was in line with forecasts.

Some 6,900 jobs will also be cut in Italy, but Unicredit’s Austrian unit, Bank Austria, will be especially hard hit. By the end of 2016, its retail banking business will be either restructured or sold.

Mr. Ghizzoni said his plan was realistic and entirely self-financed: “We are fully confident of its successful execution,” he told shareholders, who have been pressuring him to boost profits.

Other components of the plan include shuttering 800 of the bank’s branches in Italy, Austria and Germany, and setting aside €1.2 billion for investment in its digital banking platform.

 

Unicredit's chief executive Federico Ghizzoni said his plan was tough but realistic. Credit: EPA
Unicredit's chief executive Federico Ghizzoni said his plan was tough but realistic. Credit: EPA
Unicredit’s chief executive, Federico Ghizzoni, said his plan was tough but realistic. Credit: EPA

 

“Our plan is rigorous, serious and ambitious,” said Mr. Ghizzoni.

The Unicredit boss has refrained from asking shareholders for more cash, and said he planned to reach a CET 1 capital ratio – a key measure of financial strength – of 12.6 percent in 2018. That’s a significant change from last year’s strategic plan, which envisaged a capital ratio of 10 percent.

Stefano Girola, an analyst at Syz Asset Management, called the new plan “aggressive” and noted that the savings were above forecast.

Following the plan’s announcement, Unicredit’s share price rose 2 percent even though Mr. Ghizzoni reported a sharp drop in earnings in the third quarter. Net profit fell 30 percent year-on-year to €507 million due largely to increased loan loss provisions and one-off charges.

“We want to reach our goals in a macroeconomic environment that remains difficult due to low interest rates and weakening global economic growth,” Mr. Ghizzoni told shareholders.

Analysts said the bank’s issues were typical of the sector. “Unicredit’s problems are exactly the same as those of other banks in Italy and Europe. It’s not an easy situation for the industry, not least because of the low interest rates,” said economist Giorgio Di Giorgio, Dean of the School of Economics and Management at LUISS Guido Carli University in Rome.

 

The cuts won't have a big effect on German subsidiary Hypo-Vereinsbank, though there will still be job cuts there. Credit: DPA
The cuts won't have a big effect on German subsidiary Hypo-Vereinsbank, though there will still be job cuts there. Credit: DPA
The cuts won’t have a big effect on German subsidiary Hypo-Vereinsbank, though there will still be job cuts there. Credit: DPA

 

He also said Unicredit needed to slim down and modernize its management. The previous restructuring plan presented by Mr. Ghizzoni last year hadn’t been clear enough and the bank now needed to improve its service for retail customers and companies, as well as offering new digital channels, he added.

Mr. Ghizzoni plans to offset shrinking margins by focusing on organic growth, along with businesses that are less capital intensive and generate fee income.

Unicredit, which operates in 17 countries, became Italy’s most successful international bank under Mr. Ghizzoni’s predecessor, the flamboyant Alessandro Profumo, who bought several banks in central Europe, as well as Hypo-Vereinsbank, between 1999 and 2005.

“We want to reach our goals in a macroeconomic environment that remains difficult due to low interest rates and weakening global economic growth.”

Federico Ghizzoni, Unicredit CEO

Mr. Ghizzoni, who previously led Unicredit’s East Europe business, took over as chief executive in October 2010. At the time, the low-key, down-to-earth executive was welcomed as the ideal successor to Mr. Profumo, dubbed “Alessandro the Great,” having turned Unicredit from a provincial bank into a top European player that at the height of its expansion employed 160,000 people in 22 countries.

But now Mr. Ghizzoni is under intense pressure to show creditors he can boost the bank’s profitability after three capital hikes. If he doesn’t, his job will be on the line.

It’s not his first restructuring at Unicredit. The euro crisis erupted shortly after he took over, causing a surge in the bank’s refinancing costs. Its Italian business collapsed, and Mr. Ghizzoni responded with thousands of job cuts and a huge capital hike.

He will face the first test of his business plan at the end of February when Unicredit is put through its paces in a new stress test by the European Central Bank.

 

Regina Krieger is an editor with Handelsblatt in Düsseldorf. To contact the author: krieger@handelsblatt.com

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