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December 14, 2016

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UniCredit seeks US$13.8b issue

ITALY’S largest bank, UniCredit, unveiled plans yesterday to raise 13 billion euros (US$13.8 billion) in the nation’s biggest share issue, to shore up its balance sheet and distance itself from Italy’s broader banking crisis.

Its gambit comes at a troubled time for Italian banks and the economy, with Monte dei Paschi di Siena at risk of failure, a new government just installed in Rome and early elections expected next year.

UniCredit, the only Italian bank deemed vital to the stability of the global financial system, has lost over half its market value this year, on worries over profitability, bad loans and a weaker balance sheet than major European rivals.

The bank plans to launch the issue in the first quarter of 2017 and use the money to help fund the removal of 17.7 billion euros worth of bad debts from its balance sheet, enabling it to boost its profits and also dividend payouts by 2019.

It would take the bank’s core capital ratio to above 12.5 percent in 2019, though UniCredit envisages deep job cuts. It plans to shed 14,000 jobs — or about 11 percent of its staff as of the end of 2015.

Including announced asset sales, the bank will have a third fewer staff by 2019, compared with the end of last year, as a result of its turnaround plan.

“We are taking decisive actions,” Chief Executive Jean Pierre Mustier said.

UniCredit shares jumped 2 percent on the news, with traders saying its plan seemed realistic. The turnaround, though, would involve 12.2 billion euros in one-off losses in the fourth quarter, including loan writedowns and restructuring costs.

The success of the plan hinges on investors believing it will be a long-term solution. The bank has already raised 14.5 billion euros since the global financial crisis struck in 2008.

Mustier said 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 5 billion euros it needs to stay in business from private investors, a Treasury source said.


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