UniCredit offers investors US$2.2b buyback as staff face further cuts

The headquarters of UniCredit bank in Milan, Italy, February 8, 2016. — Reuters pic
The headquarters of UniCredit bank in Milan, Italy, February 8, 2016. — Reuters pic

MILAN, Dec 3 — UniCredit promised €8 billion (RM37 billion) in dividends and share buybacks today in a bid to revive its sickly share price, although profit at Italy’s top bank will barely grow despite plans to shed nine per cent of its staff.

Like other European banks, UniCredit is grappling with negative interest rates which make lending unprofitable, while Italy’s stagnant economy and unstable politics are compounding its problems, outweighing years of successful restructuring.

After cutting a fifth of its staff and shutting a quarter of its branches in mature markets in recent years, UniCredit said it would make a further 8,000 job cuts and close 500 branches under a new plan to 2023.

However, costs will hardly budge under the plan, while underlying profit is expected to make little progress, rising to €5 billion in 2023 from €4.7 billion this year.

UniCredit’s announcement triggered anger among unions in Italy, where 5,500 layoffs and up to 450 branch closures are expected given the relative size of the network compared with franchises in Germany, Austria and central and eastern Europe.

“These numbers are unacceptable,” the UNISIN union said of the cuts, which will cost UniCredit €1.4 billion between this year and the next. This is in addition to a €3 billion non-operating charge the bank expects from next year after its decision to unwind a joint-venture in Turkey.

UniCredit said on Saturday it was reducing its stake in Turkey’s Yapi Kredi, the latest disposal under CEO Jean Pierre Mustier, a French investment banker who took over in mid-2016 with a mandate to bolster the balance sheet.

To fund a clean-up which saw UniCredit shed €50 billion in problem loans, Mustier has sold more than €12 billion in assets and raised €13 billion in one of Europe’s biggest share issue in recent years.

Despite the improved risk profile, UniCredit’s shares trade below levels seen ahead of the cash call in early 2017 — or at half the value of the bank’s tangible assets.

In an attempt to lift its share price, the bank is devoting €2 billion (US$2.2 billion) to buy back shares from 2019 to complement its 30 per cent dividend payout, due to rise to 40 per cent in 2023.

“The increase of the payout ... may change the narrative on UniCredit’s equity story, from a de-risking and restructuring story to a story of capital return,” Banca IMI said.

No way M&A

Mustier, who has said low valuations for banking shares hamper mergers which would be necessary for European banks to grow in size, today ruled out a deal for UniCredit.

He said the bank would only consider small, bolt-on acquisitions, mostly in central and eastern Europe.

“No M&A and that’s it,” he said.

Asset disposals have shrunk UniCredit’s foreign and domestic operations, with the unwinding of its Turkish JV giving the bank freedom to sell its residual stake in Yapi Kredi.

European banks are struggling in a fragmented market where they grapple with outdated business models, the need for large IT investments and growing competition from non-banking players, compounding the challenge of sub-zero rates.

UniCredit said it expected the benchmark Euribor rate to remain in deeply negative territory throughout the duration of it plan, a more conservative estimate than market expectations.

The bank, which has suffered repeated cyber security breaches, also intends to spend €900 million a year on upgrading its IT systems.

And under a plan aimed at reducing the amount of debt it needs to issue based on rules that force lenders to hold liabilities to offset potential losses, UniCredit said it would house its German, Austrian and CEE operations under a sub-holding company based in Italy. — Reuters

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