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UniCredit to further reduce NPLs by €4B in 2019, raises dividend ratio to 30%

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UniCredit to further reduce NPLs by €4B in 2019, raises dividend ratio to 30%

UniCredit SpA will shed an additional €4.0 billion in gross nonperforming exposures as part of its strategy for 2019, with the noncore gross-bad-loans target for the year reduced to €17.2 billion from €19.2 billion.

CEO Jean Pierre Mustier said the Italian lender — which confirmed most of its financial targets, including a return on tangible equity of more than 9% and a common equity Tier 1 ratio of above 12.5% — plans to pay out 30% of profits as a dividend to shareholders for the 2019 financial year, up from the level of 20% announced in November. The bank also noted that it will increase its post-2019 dividend payout ratio to up to 50% from 30%, once regulatory impacts on its CET1 ratio are confirmed.

UniCredit added that the ECB has lowered the lender's Supervisory Review and Evaluation Pillar II requirement by 50 basis points to 200 basis points, resulting in a CET1 maximum distributable amount buffer, according to CRD IV, of above 250 basis points after 2019.

Meanwhile, UniCredit said separately that it signed an agreement to sell down the FINO NPL portfolio to less than 20%.

In July, the Italian lender had signed definitive transfer agreements with Pacific Investment Management Co. LLC and Fortress Investment Group LLC related to the portfolio and retained a 49.9% stake in the notes issued by the securitization vehicles upon closing of the transaction. The portfolio totaled €16.2 billion of gross bad loans at the end of June, down from €17.7 billion a year earlier.

Of the original €17.7 billion gross book value of the FINO portfolio, the Fortress vehicles totaled €14.4 billion, while the PIMCO vehicles totaled €3.3 billion.

Fellow Italian institution Generali bought 30% of the notes issued by the PIMCO vehicle from UniCredit on Dec. 7, following a competitive process and due diligence. This portion of the portfolio, which was part of the 49.9% stake retained by the bank, had an original book value of €990 million, with Generali only paying a fraction of the value.

Additionally, the lender also entered into a definitive binding agreement with funds managed by King Street Capital Management LP for the sale of a portion of its retained exposures in notes issued by the Fortress vehicles. Fortress will also participate in the transaction. The settlement of the notes is expected to conclude in January 2018.

UniCredit noted that it has submitted an application to obtain state guarantees Garanzia sulle Cartolarizzazioni delle Sofferenze on the senior most tranche of the notes issued by one of the Fortress vehicles. The bank also informed the ECB of its intention to recognize "significant risk transfer" on the three securitizations.