Italy’s largest bank, UniCredit has announced it plans to raise 13 billion euros by selling new shares. It will be the country’s biggest-ever share issue.
This comes amid political turmoil and economic stagnation in Italy and a banking crisis, with Monte dei Paschi, the country’s third-biggest lender, running out of money and trying to raise five billion euros from private investors to avoid collapse.
Analyst Tom Stevenson with Fidelity International said: “UniCredit’s plan is pretty bold, it’s pragmatic. It needs to make big steps, to take big measures. The Italian banking system has been in a poor state for a long time. It’s not just UniCredit, there is also Monte dei Paschi. But the solution to the problem has probably dragged on for longer than it should.”
UniCredit said these were “bold actions” to address concerns about profitability, billions in bad loans and a weak balance sheet.
It will also lay off more staff – bringing total job cuts to 14,000, more than 10 percent of the workforce.
Analysts said the plan seemed realistic and the bank’s shares rose.
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 pay dividends to shareholders by 2019.
Drafted in five months ago, former Societe Generale executive Mustier is trying 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,” he told analysts in a call.
Mustier also 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.
Monte dei Paschi no problem
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 year-end 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 five billion euros it needs to stay in business from private investors, an Italian Treasury source told Reuters. The European Central Bank has given it by the end of this month to raise the money.