UniCredit, Italy's largest bank by assets, plans to unveil as many as 12,000 job cuts and propose asset sales including its Austrian retail operations as management seek to avoid a capital increase that is widely acknowledged would lose them their jobs, say several people familiar with the matter.
The plan, which will be presented alongside third-quarter results on Wednesday, is a radical attempt by chief executive Federico Ghizzoni to boost profits and capital at Italy's only systemically important financial institution amid mounting pressure from investors and regulators.
UniCredit reported a common equity tier one ratio of 10.4 per cent in the first half of this year. This measure of the bank's financial strength was at the low end of its European peers and coupled with low profitability has raised concerns that regulators may push the bank to boost its capital.
According to four people familiar with the matter, an informal move to sell its lossmaking Austrian business over the summer sparked no interest. Management is now in talks to sell the Austrian retail operations to Vienna-based bank Bawag although a deal remains far from certain, three people said.
Job cuts, which on top of 5,000 already announced would account for about 7 per cent of UniCredit's workforce, will come from Italy and Austria but have a focus on its German back office and investment bank, according to three people. The focus of the plan is to cut cost-to-income ratio of about 80 per cent in Germany and Austria.
To offset any additional hit to capital from restructuring charges, management will seek to avoid a fourth capital call in seven years by raising money from more disposals. Additional asset sales under consideration include its remaining stake in its Polish-listed business and holdings in retail bank Fineco and investment manager Pioneer, the people said.
Assuming this is a successful strategy, UniCredit's management team — including Mr Ghizzoni — will stay in place. "The aim is to avoid a capital increase because if that happens the management will be sent home," said one person directly involved in the process.
UniCredit declined to comment.
UniCredit is being squeezed by the low interest rates on its lending, volatility in key markets in Ukraine and Russia, and weak growth in Italy. Its home market accounts for 70 per cent of group provisions and 80 per cent of group gross non-performing loans according to Citi research.
Azzurra Guelfi, Citi analyst, considers the revenue outlook in UniCredit's previous plan was too optimistic and expects group revenues will be 5 per cent to 7 per cent below management targets in the core divisions for 2016.
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Shares in the bank have risen just 3 per cent over the past 12 months compared with a 40 per cent rise for its Milan-based rival Intesa Sanpaolo. UniCredit trades at 0.8 times the value of its tangible assets. That compares with an average for European banking stocks of 1.3 times, according to Bloomberg data.
The restructuring — an update of a plan presented only last year — comes as management seek to assuage pressure from investors. Those tensions resurfaced in May when the majority of shareholders voted in favour of an independent board slate and not that presented by core shareholders.
There have also been questions about governance. UniCredit's vice-chairman Fabrizio Palenzona, a veteran Italian powerbroker, is being investigated by anti-mafia prosecutors for alleged links to Sicilian organised crime. A Florence court as well as UniCredit and lawyers for Mr Palenzona have said the investigation is without foundation.