UniCredit rallies as investors welcome restructuring plan

UniCredit shares rallied as investors welcomed the bank’s announcement of a rights issue of up to €13bn – Italy’s biggest ever – and further job cuts as part of a turnaround plan to boost profitability.

In a restructuring plan unveiled on Tuesday, UniCredit said it intends to launch the rights issue in the first quarter of next year to help remove €17.7bn of bad loans from its balance sheet.

The bank said it has entered into two separate agreements, one with Fortress Investment Group and one with PIMCO to transfer two portfolios of non-performing loans to newly set-up and independent entities in which it will retain a minority position.

The bank also said it will cut an additional 6,500 jobs by 2019, making a total net reduction of around 14,000 full-time employees, or 11% of its workforce, and resulting in a €1.1bn drop in personnel costs.

In addition, UniCredit said it plans to have a core capital ratio above 12.5% by 2017.

The bank said the turnaround plan would lead to $12.2bn of one-off losses in the fourth quarter, including loan loss provisions of €8.1bn and net restructuring charges equal to €1.7bn.

Chief executive officer Jean Pierre Mustier said: "We have developed a pragmatic plan based on conservative assumptions, with tangible and achievable targets, dependent on cost and risk management, levers which are firmly under our own control.

"We are taking decisive actions to deal with our non-performing exposure legacy issues to improve and support recurring future profitability to become one of Europe's most attractive banks. We are going to build on our existing competitive advantages such as our unique Western, Central and Eastern European network as well as boosting the benefit of our simple commercial banking model with a fully plugged in CIB, by transforming it further.”

RBC Capital Markets said it likes the self-help features of the new strategic plan, though the execution risk for delivering on a complex restructuring remains high.

“Assuming management reaches its targets, we see a 27% theoretical upside to the theoretical ex-rights price, though the upside is highly sensitive to the delivery on the cost programme,” it said.

CMC Markets’ Michael Hewson said: “Having been bitten three times previously, and given that there still remains a great deal of uncertainty about how the wider problems in the banking sector in Italy will be dealt with, taking part in yet another one of these deals is not without risk.

“That being said at least the management of UniCredit is trying to get on top of the problem, albeit rather belatedly…It is also looking to hive off up to €17.7bn of non-performing loans as well as cutting the dividend, though why it was even still considering paying one is a mystery.”

At 1045 GMT, UniCredit shares were up 6.7% to €2.59.