UniCredito will cut 9,000 jobs and run Germany's HVB on a tight leash once it carries out Europe's biggest cross-border takeover, the head of the Italian bank said yesterday.
"After the deal is completed, financial discipline will be the key word," UniCredito CEO Alessandro Profumo said, seeking to address concerns that he might acquire skeletons in HVB's cupboards, as well as its assets in fast-growing eastern Europe.
Under his €20 billion plan to combine banks stretching from Turkey through Europe to the Baltic Sea, UniCredito aims to slash almost €900 million in costs in three years, more than analysts expected.
UniCredito plans to offer five new shares for each one in HVB. It will also pay stock or cash for HVB units Bank Austria Creditanstalt and BPH in Poland.
Markets welcomed Mr Profumo's reassurances, sending shares in UniCredito and HVB both up nearly four per cent.
"There are some deals that make sense to start with and others that don't. This one makes a lot of sense to us," analysts at investment bank Morgan Stanley said in a report.
"We like it."
Mr Profumo said €1.35 billion would be taken in restructuring charges this year to streamline operations and impose discipline on the ailing HVB.
Investors are keen to see the star manager improve risk management at HVB. It has been forced to write down €5.7 billion in bad assets in the last three years and concerns persist that losses from real estate lending could resurface.
"There is nothing that worries us," Mr Profumo said, explaining auditors Deloitte had examined HVB's accounts as well as paperwork relating to the bank drawn up by the German bank's auditors and by local regulators.
"We will be very, very tight and manage capital allocation and manage the risk-weighted assets of the group."
The Morgan Stanley analysts said UniCredito could face pretax clean-up costs of up to €3 billion, or none at all, depending on what might be discovered in HVB's balance sheet.
The banks said yesterday the planned job cuts represent about seven per cent of the group's combined workforce.
HVB Chief Executive Dieter Rampl said he did not expect problems from German labour unions, despite plans to cut seven per cent of staff in the country. Two per cent of Italian staff will be cut while nine per cent of employees in central and eastern Europe will be axed.
Analysts applauded the combination of the two banks' big investments in the fast-growing economies of central Europe and in their affluent, albeit flagging, domestic markets.
"They will be the leading bank in one of the wealthiest regions of Europe and the market leader in central and eastern Europe," said Thomas von Luepke, senior director at rating agency Fitch.
But one of HVB's biggest institutional investors, AGF, criticised the valuation of the German bank.
"HVB is worth significantly more," said Rory Flynn, a fund manager with AGF International Advisers, whose parent company owns almost 1.5 per cent of HVB.
"It is not taking a bank and delivering it healthily to another. It is just getting in at the bottom. It is what people accuse vulture funds of doing. For a chief executive to do it, that's bad."
Mr Profumo's bid to take over Germany's second-largest bank follows failed attempts in recent years by UniCredito for deals with Spain's Banco Bilbao Vizcaya Argentaria and Commerzbank, also of Germany.
Under his stewardship, UniCredito has established a reputation as Italy's best-run bank and possibly the only one capable of a major takeover outside the country.
Its apparently clear run for HVB contrasts with the problems faced by Dutch bank ABN AMRO and BBVA to overcome regulatory and local shareholder resistance in their bids for Italian banks.
ABN on Friday raised its cash bid for Banca Antonveneta to €26.50 from €25, which sent ABN's shares two per cent lower yesterday.
In Germany, HVB's largest shareholder, Munich Re, said it could sell shares in the German bank before the UniCredito share offer ends.
It also said a cooperation deal to sell its insurance products through HVB would not be affected by the merger.