Italy’s UniCredit to Eliminate 8,000 Jobs
Italy’s UniCredit to Eliminate 8,000 Jobs
(Bloomberg) --
UniCredit SpA Chief Executive Officer Jean Pierre Mustier will reward investors with 2 billion euros ($2.2 billion) of share buybacks -- its first in at least 14 years -- while cutting about 8,000 jobs to compensate for slow economic growth and sluggish revenue.
The Milan-based lender, announcing a new strategic plan through 2023, will boost shareholder payouts through a combination of dividends and the stock repurchases. The employee reductions, equal to more than 9% of the workforce, will come in part through the closure of about 500 branches. UniCredit also announced a separate buyback equal to about 9% of this year’s earnings.
Mustier is seeking to drive investor returns while signaling that the bank -- in common with many of its peers -- is struggling to boost growth in a time of negative interest rates. Revenue and costs are expected to be little changed through 2023 and the bank will focus on eking out what it can on its own rather than attempting major acquisitions.
The plan’s targets are “pragmatic and achievable,” Mustier said in the statement. “They are based on a realistic set of macroeconomic assumptions, being more conservative than those assumed by the market.”
UniCredit rose as much as 1.5% in Milan trading and was up 0.7% at 12.45 euros as of 2 p.m. The stock is up 26% this year. That compares with a 2.5% gain by the STOXX Europe Banks Index.
The plan is both realistic and better than expected, according to analysts. Bloomberg Intelligence’s Georgi Gunchev called the bank’s revenue target “sensible” while its cost goals were “underwhelming.”
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Simpler Structure
UniCredit expects to deliver 1 billion euros of savings in western Europe which will in part be achieved through the job and branch cuts. The expected 1.4 billion-euro cost of the initiative will be booked in 2019 and 2020.
“The remuneration policy is slightly below our expectations, even if the increase in 2019 is completely unexpected,” Fidentiis Equities analyst Fabrizio Bernardi, said in a note. The payout level is affordable if UniCredit can generate at least 1 billion euros of recurring net income quarterly, he said.
The job cut plan is “unacceptable” according to Massimo Masi, general secretary of the Uilca union, which represents UniCredit employees. He said the plan includes 5,500 exits in Italy in addition to the 500 exits already agreed to previously.
UniCredit said it will spend 9.4 billion euros on its information technology over the coming four years, including jobs, maintenance and cybersecurity costs.
The CEO will focus on further simplifying the bank’s structure and improving the way it allocates capital. UniCredit plans to create a sub-holding company to control its international businesses and it will further reduce its non-performing loans. The bank also set out the following plans for shareholder returns:
- UniCredit will distribute 40% of underlying profit from 2020 to 2022
- 30% will be a cash dividend and it will buy back stock equal to 10% of its earnings.
- Dividend will increase to 40% in 2023 with purchases boosting total payout to 50%.
- Buyback based on 2019 earnings will increase the payout to 40% from 30% previously.
Ahead of the new strategic plan, UniCredit took a number of steps this year to get out of businesses that aren’t key to its operations. The bank agreed to sell a direct stake of 9% in Yapi ve Kredi Bankasi AS to Koc Holding AS, unwinding their joint venture in the Turkish lender in a move that will lead to 1 billion euros of losses. The company earlier this year also sold its holdings of Italy’s Banca Fineco SpA.
UniCredit Sells Turkey Venture Stake as CEO Readies Goals
UniCredit has disclosed or hinted at many of the plan’s details in recent weeks. Mustier has said that he expects to see consolidation among European financial companies only after stock values rise and that the Italian lender would prefer to repurchase shares instead of doing large deals. One sign of the tougher environment: the bank is expect a return on tangible equity -- a key profit metric -- of more than 8% in the plan, down from more than 9% in 2019.
Despite tougher regulation in the coming years, UniCredit plans to keep its common equity Tier 1 ratio at 200-250 basis points over regulatory requirements throughout the plan. Revenue is expected to rise by just 0.8% a year through 2023, as low and negative interest rates continue to hurt earnings from lending at banks across the euro zone.
UniCredit posted a better-than-expected 26% rise in adjusted profit in the third quarter and boosted its CET1 ratio, a key measure of financial strength, after the sale of businesses.
To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net;Antonio Vanuzzo in London at avanuzzo@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen, James Hertling
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