Italy’s largest bank, UniCredit, unveiled plans yesterday to raise €13 billion in the nation’s biggest share issue, to shore up its balance sheet and distance itself from Italy’s broader banking crisis.
Its gambit comes at a troubled time for Italian banks and the economy, with Monte dei Paschi di Siena at risk of failure, a new government just installed in Rome and early elections expected next year.
UniCredit, the only Italian bank deemed important to the stability of the global financial system, has lost more than half its market value this year, hit by concerns over profitability, bad loans and a weaker balance sheet than major European rivals.
The bank – which owns a minority shareholding in Bank of Valletta – plans to launch the issue in the first quarter of 2017 and use the money to help fund the removal of €17.7 billion worth of bad debts from its balance sheet, enabling it to boost its profits and also dividend payouts by 2019. It would take the bank’s core capital ratio to above 12.5 per cent in 2019, though UniCredit envisages deep job cuts.
It plans to shed 14,000 jobs – or about 11 per cent of its staff as of the end of 2015.
Including announced asset sales, the bank will have a third less staff by 2019, compared with the end of last year, as a result of its turnaround plan.
“We are taking decisive actions,” chief executive Jean Pierre Mustier said.
UniCredit shares jumped two per cent on the news, with traders saying its plan seemed realistic. The turnaround, though, would involve €12.2 billion in one-off losses in the fourth quarter, including loan writedowns and restructuring costs.
The success of the plan hinges on investors believing it will be a long-term solution.
The bank has already raised €14.5 billion since the global financial crisis struck in 2008.
Mustier told reporters that the problems of Monte dei Paschi would not upset UniCredit’s plans.
“I am highly confident Monte Paschi will be resolved by year-end and so it will have no impact on our capital increase.”
Italy is ready to bail out Monte dei Paschi, the country’s third-largest bank, if it fails to get the €5 billion it needs to stay in business from private investors, a Treasury source said.
The European Central Bank has given it by the end of this month to raise the money.
For UniCredit, investment banks have signed a pre-underwriting agreement to help it market the issue, including Morgan Stanley, UBS, BofA Merrill Lynch, JP Morgan and Mediobanca.
UniCredit’s bad loans would be sold to two vehicles, one managed by Fortress Investment Group and the other by PIMCO. UniCredit would retain minority stakes in each.