UniCredit SpA plans to raise 13 billion euros ($ 13.8 billion) in a rights offer, betting that a balance-sheet cleanup and cost cuts will persuade investors that Italy's biggest bank can restore profitability even without much revenue growth.
The bank is targeting 4.7 billion euros of net profit in 2019 with a return on tangible equity above 9 percent, Milan-based UniCredit said in a presentation of its strategic plan on Tuesday. As part of the three-year strategy, the bank plans to shed an additional 6,500 jobs, bringing the total to 14,000, as it aims for 1.7 billion euros of annual cost savings.
Jean Pierre Mustier on Dec. 13.
Photographer: Simon Dawson/Bloomberg
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.
While the bank expects annual costs to drop, it sees revenue rising by just 0.6 percent per year through 2019. UniCredit sees falling net interest income, with growth coming from fees and commissions, it said in a presentation in London.
"With almost no revenue growth in the foreseeable future, the plan is focused on cutting costs and improving the asset quality and capital levels," Luigi Tramontana, an analyst at Banca Akros, said in a note to clients. "The rights issue stands at the top of the expectations, given the stronger-than-expected effort" to boost loan-loss reserves.
Read more: With no severance, CEO bets future on strategy
UniCredit has struggled to build up capital, a task compounded by the bank's complex structure after $ 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. It expects to raise about 8 billion euros from those deals as well as the sale of its 30 percent stake in online lender
'Decisive Actions'
"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 will focus on organic growth and doesn't plan further acquisitions, the CEO said at a press conference, ruling out acquisitions. The company's German unit, formerly Hypovereinsbank, is a strategic asset in a country that is core to the bank, Mustier said, adding that he also isn't looking to sell the company's shipping business or other major operations.
The stock rose as much as 9.3 percent and was up 6.9 percent at 2.69 euros as of 11:37 a.m. in Milan. UniCredit has lost about half its value this year, valuing the bank at 15 billion euros.
The capital increase will take place in the first quarter of next year, Mustier said on a conference call with journalists. The CEO said he's confident Banca Monte dei Paschi di Siena SpA's efforts to raise capital will be resolved this month and will have "no impact" on his own bank's fundraising.
The revamp will 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 won't pay a dividend for 2016 and targets a 20 percent to 50 percent payout ratio in subsequent years.
Bad Loans
Part of the funds the bank is raising will 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.
Fortress Investment Group and Pimco will take majority stakes in the two units that will take on the non-performing loans, UniCredit said.
“We welcome the focus on cleaning up the balance sheet, although some may have hoped the extent of provisions could have delivered a larger upfront non-performing loan reduction," Jefferies Group LLC analysts including Benjie Creelan-Sandford said in a note, repeating their buy rating. "Given lack of control over the external environment, we think the focus on capital and costs is important."
Italy Struggles
Banks across Italy are contending with expectations of low economic growth, pressure from European regulators to meet stricter capital standards and political instability following the fall of Matteo Renzi's government. The prospect that Monte Paschi may need a state rescue if its capital plan fails has also affected confidence in Italian lenders across the board.
The 4.7 billion-euro profit target compares with a consensus of 3.9 billion euros for 2019, according to the Jefferies analysts. On a comparable basis the bank made 1.5 billion euros in 2015.
The bank's 1 billion euros of 6.75 percent additional Tier 1 bonds, the first notes to take losses in a crisis, rose 2.5 cents to about 92 cents, near a 2016 high, according to data compiled by Bloomberg. They fell to as low as 70 cents in February.
Regulators are pushing Italian lenders to clean up their balance sheets, strengthen capital buffers and cut an estimated 360 billion euros in non-performing loans. UniCredit has sold more than 10 billion euros of bad loans in the past three years and has set aside almost 25 billion euros for loan-loss provisions since 2013.
Total net costs will drop to 10.6 billion euros from 12.2 billion euros in 2015, the bank said. The bank employed about 123,000 people at the end of September. Excluding businesses the bank is selling, headcount was 99,500 at the end of the third quarter, and will fall to 87,000 by 2019.
No comments:
Post a Comment