UniCredit to Raise $14 Billion in Rights Issue, Shed Bad Loans and Cut Jobs in Overhaul -- Update

By Giovanni Legorano

ROME--UniCredit SpA said Tuesday it planned to cut thousands more jobs and sell shares and a large chunk of bad loans as part of an overhaul aimed at bolstering its capital base.

The bank said it planned to launch a EUR13 billion ($13.8 billion) rights issue by the end of March, one of the largest the country has seen. The bank has a market capitalization of just under EUR15 billion.

In parallel, Italy's largest bank by assets said it planned to shed EUR17.7 billion of gross bad loans by bundling them into securities to be sold to investors.

To that end, the bank said it had agreed to transfer one portfolio of bad loans to a newly created firm controlled by hedge fund Fortress Investment Group and another to a firm controlled by Pacific Investment Management Co., or Pimco. UniCredit said it would own a minority stake in the two companies.

The two transactions, involving the EUR17.7 billion in bad loans, were slated to be completed by the end of the first half of next year.

The bank's shares rose sharply on news of its plans, gaining more than 7% to EUR2.60 at 10:20 a.m. local time in Italy.

The bank also said it would cut an additional 6,500 jobs by 2019 on top of the job cuts that had already been planned, bringing total reductions to 14,000, or 10% of its workforce. The cuts don't include the jobs that will go with the businesses the bank agreed to sell this year. As a result, personnel costs would drop by EUR1.1 billion, it said.

"We are taking decisive action to deal with the bank's legacy issues," said UniCredit Chief Executive Jean-Pierre Mustier.

The unveiling of UniCredit's strategic plan comes as the Italian banking system is under a renewed spotlight with a crisis at Banca Monte dei Paschi di Siena SpA, which is racing to complete an ambitious recapitalization plan by the end of the year.

If Monte dei Paschi fails to raise EUR5 billion from private investors by year's end, it will be bailed out by the Italian government, a prospect some fear would create market turmoil.

UniCredit has also been battered by investors since the beginning of the year as they fretted about its fragility. The bank has lost 53% of its value since the start of the year, while Italian banks overall shed around 40% and European banks 3%.

"We are highly confident that the Monte dei Paschi situation will be solved by the end of the year and will not impact our plans," said Mr. Mustier.

UniCredit said that it would take a EUR12.2 billion one-off hit in risk charges for the fourth quarter of this year in preparation for the balance sheet cleanup. These charges would include EUR8.1 billion in provisions for losses on bad loans.

With the new plan, UniCredit targets an annual net profit of EUR4.7 billion in 2019, up from EUR1.5 billion in 2015. It also aims to cut total costs by 13% to EUR10.6 billion.

The bank also said it planned to not make a dividend payment for this year but would be targeting a cash dividend payment of 20% to 50% from next year. Assuming a 20% cash dividend payout, the bank is targeting a common equity Tier 1 ratio, a measure of banks' capital solidity, of more than 12.5% by 2019.

To regain financial footing, the bank has sold a number of assets since Mr. Mustier took the helm earlier this year and announced a strategic review.

On Monday, UniCredit said it had agreed to sell its asset-management unit Pioneer Investments to France's Amundi SA for EUR3.88 billion.

Write to Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

December 13, 2016 04:41 ET (09:41 GMT)

Simplify Exchang (NYSE:FIG)
Historical Stock Chart
From Aug 2024 to Sep 2024