trending Market Intelligence /marketintelligence/en/news-insights/trending/PbIVurRplPWlgtWeed9xUA2 content esgSubNav
In This List

UniCredit to raise €13B in rights issue, off-load €17.7B of bad loans

Blog

Banking Essentials Newsletter: June Edition, Part - 2

Blog

Insight Weekly: Fed's policy stance; overdrafts under scrutiny; energy stocks rally

Case Study

A Chinese Bank Strengthens its Credit Risk Assessments

Blog

Latin American and Caribbean Market Considerations Blog Series: Focus on LGD


UniCredit to raise €13B in rights issue, off-load €17.7B of bad loans

UniCredit SpA will ask investors for €13 billion in fresh equity, pay no dividend in 2016 and cut a total of 14,000 jobs as part of a restructuring announced Dec. 13.

The Italian bank will off-load some €17.7 billion in gross bad loans -- known as sofferenze in Italy's classification system -- through a securitization transaction. At least 20% of the portfolio will be sold to third-party investors in the first phase during 2017, while the full disposal will occur by the 2019 end date of its strategic plan.

The bank on the same day announced that it entered into agreements with Fortress Investment Group and PIMCO to transfer the €17.7 billion of bad loans to new, independent entities to be managed by and majority-owned by each of the two firms. UniCredit will retain minority positions in both.

UniCredit expects to book fourth-quarter 2016 one-off charges of €12.2 billion, including loan loss provisions of €8.1 billion and net restructuring charges of €1.7 billion.

UniCredit said the €13 billion rights issue -- which compares to a market capitalization of just under €15 billion as of Dec. 12 -- and the disposals of its holdings in Bank Pekao SA and Pioneer Global Asset Management SpA and a 30% stake in FinecoBank SpA will help the group achieve a fully loaded common equity Tier 1 ratio of above 12.5% by the end of 2019, compared to 10.8% as of Sept. 30.

Other targets for 2019 include net income of €4.7 billion in 2019, compared to €1.5 billion in 2015, with costs dropping over the period to €10.6 billion from €12.2 billion and the return on tangible equity increasing to above 9% from 4%. After paying no dividend in 2016, UniCredit will impose a cash dividend payout policy of between 20% and 50% thereafter.

The group gross nonperforming exposure ratio is slated to decline to 8.4% by the end of 2019 from 15.1% at Sept. 30, with the net NPE ratio falling to 4.0% from 7.9% over the same timeline. Coverage of bad loans will rise to above 63%, while that on loans considered "unlikely to pay" will be boosted to more than 38%.

The group expects its strategic plan to include an additional 6,500 net redundancies by 2019, for a total reduction of approximately 14,000 roles, leading to a €1.1 billion decrease in personnel costs. A further €600 million will be saved in other operating costs, leading to annualized savings of €1.7 billion from 2019. UniCredit will invest €1.6 billion in IT to update its infrastructure and boost digitization.

The planned capital increase will be submitted for approval to an extraordinary shareholders' meeting slated for Jan. 12, 2017. The transaction will be carried out no later than June 30, 2017. Also up for approval at the extraordinary shareholders' meeting is a 10-for-1 reverse stock split of UniCredit's ordinary and savings shares.

UniCredit Corporate & Investment Banking, Morgan Stanley and UBS will act as structuring advisers and joint global coordinators and joint book runners for the €13 billion rights issue. BofA Merrill Lynch, J.P. Morgan and Mediobanca will also act as joint global coordinators and joint book runners.

Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs International and HSBC will act as co-global coordinators and joint book runners. All companies other than UniCredit CIB agreed to fully underwrite the capital increase.

Morgan Stanley & Co. International and UniCredit CIB acted as financial and structuring advisers to UniCredit on the transactions with PIMCO and Fortress.

UniCredit CEO Jean-Pierre Mustier voiced confidence that the rights issue will succeed, even after Italians voted in a referendum to reject constitutional reforms spearheaded by former Prime Minister Matteo Renzi and despite Banca Monte dei Paschi di Siena SpA's financial stability concerns casting a pall on the overall Italian banking sector, the Financial Times reported Dec. 13.

"The referendum result was a No but it doesn't change our business model," Mustier told the FT in an interview. "The Monte dei Paschi situation will be solved, and by the year-end. There will be no overhang from Monte dei Paschi."

Shares in UniCredit rose nearly 16% to €2.81 apiece in Dec. 13 trading in Milan.