The board of directors of Unicredit has resolved on a maximum capital increase, including any share premium, of EUR 13 billion, as part of the strategic plan to 2019. The transaction will be submitted for approval to the ordinary and extraordinary shareholders’ meeting called for 12 January and must be completed by 30 June.
Meanwhile the stock opened this morning down 3.3% at EUR 2.344, was suspended and a few minutes later was up 1.81% at EUR 2.468. An hour later, at 10:30, it was the most traded share on Piazza Affari (108 million shares changed hands) and jumped 8.49% to EUR 2.63.
THE OBJECTIVES. The details were explained by the bank today in London during the presentation of the Transform 2019 strategic plan, signed by the new CEO Jean Pierre Mustier. The aim will be to achieve in 2019 a fully loaded CET1 capital ratio above 12.5%, a ROTE above 9% from 2019 onwards, net profit of EUR 4.7 billion, average annual revenue growth of 0.6%, and costs of EUR 10.6 billion (they were EUR 12.2 billion in 2015). Most of the savings will be achieved in the first 24 months.
Among the objectives of the plan: a 2015-2019 compound annual growth rate (CAGR) of +0.6%, a cost/income ratio below 52%, a cost of risk of 49 basis points (40 basis points in 2015). And further: risk-weighted assets (RWA) of EUR 404 billion, NPE (non-performing exposures) coverage above 54%, UTP (unlikely to pay) coverage above 38%, and NPL coverage above 63%.
Meanwhile, no dividend is envisaged for 2016. For the future, CEO Mustier spoke of “implementing a cash dividend distribution policy in the order of 20-50%” (payout policy).
“We have developed a pragmatic plan based on prudent assumptions, with concrete and achievable objectives, depending on risk and cost management levers that are firmly under our control”, commented CEO Mustier. He added that the bank is “implementing decisive measures to manage the legacy problems of gross non-performing exposures (NPE) in order to improve and sustain future current profitability and become one of the most attractive banks in Europe”.
UniCredit will remain a systemic bank in this respect despite the recent disposals (Pekao, Pioneer, a stake in Fineco ), because, as CEO Mustier reiterated, “we intend to profit from our current competitive advantages, such as our unique extensive network across Western, Central and Eastern Europe, as well as to leverage the benefits of our streamlined commercial banking model with a perfectly integrated Corporate & Investment Banking segment”.
THE UNDERWRITING SYNDICATE. The increase is fully underwritten by a syndicate made up of international banks. Unicredit Corporate & Investment Banking, Morgan Stanley and UBS are acting as structuring advisors and, together with BofA Merrill Lynch, J.P. Morgan and Mediobanca , as joint global coordinators and joint bookrunners. In addition, Citigroup, Credit Suisse, Deutsche Bank , Goldman Sachs International and HSBC are acting as co-global coordinators and joint bookrunners.
The joint global coordinators, with the exception of Unicredit Corporate & Investment Banking, and the co-global coordinators have signed a pre-underwriting agreement under which they have undertaken to enter into an underwriting agreement for the subscription of the newly issued shares remaining unsubscribed at the end of the auction of unexercised rights, up to a maximum amount equal to the countervalue of the rights issue.
THE SHARES. On 12 January the board will propose to the shareholders’ meeting a reverse split of the ordinary and savings shares at a ratio of 1 new ordinary share with regular dividend entitlement for every 10 existing ordinary shares and 1 new savings share with regular dividend entitlement for every 10 existing savings shares, “following the cancellation of ordinary and savings shares in the minimum number necessary to allow the overall balancing of the transaction, without a reduction in share capital”.
NPLs. Meanwhile the bank, as anticipated today by MF-Milano Finanza, has signed two agreements for the sale of a portfolio of EUR 17.7 billion of NPLs. One was signed with Fortress and the other with Pimco. Both agreements provide for the establishment of vehicles in which Unicredit will hold a minority position. The timeframe for completion of the transactions is expected to be by June 2017.
UniCredit will record write-downs of EUR 12.2 billion in the fourth quarter of 2016, of which EUR 8.1 billion for loan loss provisions and EUR 4.1 billion for adjustments on equity investments and other write-downs.
REDUNDANCIES. The strategic plan of Unicredit approved by the board provides for a further 6,500 redundancies by 2019. The total net reduction in full-time employees thus rises to 14,000 by the end of the plan (-21% of employees in Italy), with personnel cost savings of EUR 1.1 billion. 883 branches will be closed, again in Italy, for savings of EUR 650 million.
ANALYSTS. Jefferies (rating buy, target price EUR 3) today calls the plan “aggressive” because of the clear balance-sheet clean-up that experts like, and which “paves the way for a re-rating of the stock”. What is convincing is the ROTE target of 9%, which “will clearly be a key element, and the 2019 net profit target of EUR 4.7 billion, well above consensus expectations of EUR 3.9 billion”.
Banca Imi spoke this morning (rating hold, target price EUR 2.4) of operating cost cuts beyond expectations, as well as the profitability target, while analysts at Banca Akros (rating accumulate, target price EUR 2.6) stress that “almost no revenue growth” can be seen in the short term, “because the plan is centred on cost cutting and on improving asset quality and capital levels”.
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