UniCredit SpA, Italy’s biggest bank, plans to raise 13 billion euros (US$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 euros of net profit in 2019 with a return on tangible equity above 9 percent, the Milan-based company said in a statement yesterday.
As part of the three-year strategy, the bank plans to shed an additional 6,500 jobs as it aims for 1.7 billion euros of annual cost savings.
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 US$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 euros in Milan on Monday, valuing the bank at 15 billion euros.
The revamp is to help UniCredit to increase its common equity Tier 1 ratio to more than 12.5 percent by 2019 from 10.8 percent at the end of September.
The bank is not to pay a dividend for this year and targets a 20 to 50 percent payout ratio in subsequent years.
UniCredit’s third-quarter profit declined 12 percent to 447 million euros from a year earlier, while capital buffers increased through asset sales.
This year, the bank has agreed to deals to raise about 8 billion euros by selling Pekao, Pioneer and its 30 percent stake in online lender FinecoBank SpA.
Part of the funds the bank is raising is to cover losses from disposals of bad loans.
UniCredit said it will set aside 8.1 billion euros for non-performing loans as it plans to move 17.7 billion euros of soured debt off its books for securitization and a subsequent sale.
The bank said one-offs this quarter will total 12.2 billion euros.
The job reductions are to bring the total cuts to 14,000.
Total net costs will drop to 10.6 billion euros from 12.2 billion euros last year, the bank said.
The bank employed about 123,000 people at the end of September.
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