UniCredit to raise $13.8bn in Italy’s big­gest share is­sue

Kuwait Times - - BUSINESS -

Italy’s largest bank, UniCredit, plans to raise 13 bil­lion eu­ros ($13.8 bil­lion) in the coun­try’s big­gest-ever share is­sue to shore up its bal­ance sheet and shield it­self from a broader bank­ing cri­sis. The plans an­nounced yes­ter­day, which also in­clude 14,000 job cuts, come at a tur­bu­lent 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 about half its mar­ket value this year, hit by prof­itabil­ity con­cerns, bad loans and a weaker bal­ance sheet than ma­jor Euro­pean ri­vals. Chief Ex­ec­u­tive Jean Pierre Mustier said the bank planned to launch the share is­sue in the first quar­ter of 2017 and use the money to help mop up 17.7 bil­lion eu­ros worth of bad debts from its bal­ance sheet, en­abling it to boost its prof­its and also div­i­dend pay­outs by 2019.

Drafted in five months ago, the for­mer So­ci­ete Gen­erale ex­ec­u­tive has sought to stream­line the bank, sell­ing as­sets like fund man­ager Pioneer and Pol­ish unit Bank Pekao. “We’ve taken some bold ac­tions be­cause self-help is al­ways the best thing to do,” the 55-year-old told an­a­lysts in a call.

Joseph Oughourlian, CEO at UniCredit share­holder Am­ber Cap­i­tal, said he was a firm be­liever in Mustier and his plan and would par­tic­i­pate in the rights is­sue. “Sort­ing out UniCredit is huge ser­vice and a plus for the Ital­ian bank­ing sec­tor. We now have the two largest banks in Italy well-cap­i­talised, and we’ll run af­ter the rights is­sue,” he said. Italy’s other ma­jor bank is In­tesa San­paolo.

The is­sue would take the bank’s core cap­i­tal ra­tio to above 12.5 per­cent in 2019, from about 10.8 per­cent now, though UniCredit en­vis­ages deep job cuts. It plans to shed 14,000 jobs, or about 11 per­cent of its staff as of end-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. Mustier pledged to cut his fixed salary by 40 per­cent to 1.2 mil­lion eu­ros with no an­nual bonus this year or dur­ing the plan to 2019.

While UniCredit ex­pects net profit to in­crease to 4.7 bil­lion eu­ros in 2019 from 1.5 bil­lion last year, it projects rev­enue will rise just 0.6 per­cent an­nu­ally, with growth mainly com­ing from fees and com­mis­sions. Shares in the bank jumped 8 per­cent on news of its plans, with traders say­ing its tar­gets seemed re­al­is­tic. The turn­around, though, would in­volve 12.2 bil­lion eu­ros in one-off losses in the fourth quar­ter, in­clud­ing loan write­downs and re­struc­tur­ing costs.

“This is a big 20-bil­lion-euro cap­i­tal pack­age if we in­clude the re­cent dis­pos­als,” said Zenit fund man­ager Ste­fano Fabi­ani. Mustier said no more as­set sales were on the cards and that UniCredit it­self was not in talks for a pos­si­ble merger. His ap­point­ment this year had re­vived ru­mours about a pos­si­ble merger be­tween UniCredit and So­ci­ete Gen­erale.

The suc­cess of UniCredit’s plan rests on in­vestors be­liev­ing it will be a long-term so­lu­tion. The bank has al­ready raised 14.5 bil­lion eu­ros 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 yearend 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 eu­ros 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. —AFP

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