UniCredit, Italy’s largest bank by assets, said on Tuesday that it planned to cut 14,000 jobs over the next three years and that it would seek to raise nearly $14 billion, part of a strategic overhaul that comes at a crucial time for the country’s troubled banking sector.
The latest reshaping of UniCredit under Jean-Pierre Mustier, who became chief executive in July, will be closely watched for what it says about the willingness of investors to help troubled banks in Italy, where lenders have an estimated 360 billion euros, or $380 billion, in problem loans.
After Italians voted this month against changes to the Constitution, prompting Prime Minister Matteo Renzi’s resignation, there are fears that political instability could deter investors who are needed to provide capital and to help Italian banks dispose of bad debt.
Banks can sell packages of delinquent loans at a discount to get them off their books, but only if private equity companies and other investors are willing to buy.
The plan unveiled by UniCredit would look to address those problems by raising €13 billion and cutting nearly a tenth of the lender’s work force.
The new capital would help the bank absorb the cost of a plan, also announced on Tuesday, to sell €17.7 billion in problem loans to investors.
“We have developed a plan, based on conservative assumptions, that is pragmatic, with tangible and achievable targets,” Mustier said at the lender’s investor day in London on Tuesday.
“To be in control of the levers of the execution of the plan is a very important key for its success,” he added. “That means that, going forward, we will deliver recurring value to our shareholders and become one of Europe’s most attractive banks.” UniCredit shares rose nearly 9 per cent in afternoon trading in Milan after the announcement.
The lender said it would cut an additional 6,500 positions, bringing total job reductions to 14,000 by 2019. That would result in lowering personnel costs by an estimated €1.1 billion. As of September 30, UniCredit had more than 142,00 employees, including the joint venture it operates with the Turkish company Koc Financial Group.
Over all, UniCredit said it expected to cut costs by €1.7 billion annually, resulting in a cost base of €10.6 billion in 2019. A majority of those reductions would happen in the next two years, the bank said.
Since Mustier joined the company, UniCredit has sold assets including stakes in a Polish bank and in an online banking and brokerage arm. On Monday, it agreed to sell its Pioneer Investments business to the French asset manager Amundi for €3.6 billion.
The lender said on Tuesday that it had reached separate agreements with the private equity firm Fortress Investment Group and the bond giant Pimco to transfer a portfolio of €17.7 billion of nonperforming loans to two newly-created entities, with UniCredit taking a minority position in each.
Those transactions are expected to be completed by the end of the first half of 2017.
In the fourth quarter, the lender said that it would take charges of €12.2 billion as part of its efforts to clean up its balance sheet, including €8.1 billion in loan-loss provisions.
“These actions are consistent with our expectations, and we think they represent a good trade-off between profitability and capital strengthening,” Paola Sabbione, a Deutsche Bank analyst, said in a research note on Tuesday.
The restructuring and capital plan was unveiled just before the lender’s capital markets day for analysts and investors in London on Tuesday. Shareholders are expected to vote on January 12 on whether to approve the plan to raise capital.
Contrary to expectations, shares of Italian banks including UniCredit have risen since December 4, the day of the referendum on the constitutional overhaul.
But the share gains are not necessarily a sign of confidence in the banks. Some investors may be speculating that fear of political populism in Italy will prompt the European Commission, the European Union’s executive arm, and the European Central Bank to support a bank rescue with public funds.
Analysts warn that investor good will toward Italian banks could evaporate quickly.
“We have seen during 2016 how fast markets can revise their views, sometimes for no clear reason,” analysts at Deutsche Bank said in a report last week on the Italian banking sector.
The Italian news media has speculated that the government would contribute €15 billion to €20 billion in guarantees to encourage private sector investors to provide banks with new capital. But using government money for a rescue is complicated because of European Union rules intended to prevent taxpayers from bearing the burden of mistakes by bank executives.
A rescue would be simpler if Italy were allowed to support the banks without invoking rules that would impose some of the burden on middle-class investors. Many Italians own bank bonds. If they have to share the pain, the backlash could play into the hands of populist parties and result in even more political instability.
© The New York Times News Service
