UniCredit to pay out €16B through 2024 amid improved efficiency, digitization

UniCredit SpA plans to hand back a total of €16 billion to shareholders through 2024 as part of a new strategy unveiled Dec. 9 that will seek to improve the Italian lender's capital efficiency and digital capabilities.

CEO Andrea Orcel said the planned distributions, which will comprise a mix of dividends and share buybacks, will be delivered through increased profitability and a more capital-efficient model. The lender set a return on tangible equity target of around 10% and a yearly organic capital generation goal of around 150 basis points. The bank aims to achieve a 2% compound annual growth rate for net revenues and 10% for net profit during the period.

Shareholders are expected to receive returns of €3.7 billion in 2021 and that amount will be increased over time, while maintaining a common equity Tier 1 ratio of between 12.5% and 13%.

UniCredit's CET1 ratio has been comfortably above this target in recent quarters, S&P Global Market Intelligence data shows. The bank's CET1 ratio increased from 15.15% in the third quarter of 2020 to 16.54% in the first quarter of 2021, before declining slightly to 16.11% in the second quarter and 16.14% in the third quarter. "Our CET1 ratio has been held constant while absorbing around 100 basis points of regulatory headwinds," Orcel said.

UniCredit is targeting gross cost savings of €1.5 billion, of which €400 million will come from digital and data. Orcel described UniCredit's digital capabilities as "middle of the pack" when compared to its traditional competitors but warned that this will not be sufficient to avoid losing market share to fintechs.

The savings will enable the bank to fund a digital transformation, Orcel said. It plans to invest €2.8 billion and make 2,100 new hires in this area — more than half of 3,600 new staff it aims to take in over the next four years.

"A majority of our work is done by external providers who add layers of bureaucracy and increase time to market. This also comes at a higher price." Orcel said. "We will take back ownership of our core competencies, hiring product managers and developers into our organization."

The bank will only consider mergers and acquisitions that reinforce its franchise and enable it to meet its ROTE target, Orcel said. UniCredit's negotiation with the Italian government for the acquisition of Banca Monte dei Paschi di Siena SpA collapsed because both parties were not able to agree on the capital the troubled Siena-based lender needed before a transaction.