Market - - Dec 13,2016
Italy’s biggest bank, UniCredit unveiled its plans to raise 13 billion euros ($13.8 billion) by issuing shares and helping itself get away from Italy’s banking crisis.
UniCredit also announced to cut 14,000 jobs (11% of its workforce) over the next two years, to shore up its balance sheet and get back to financial health. This will be Italy’s biggest share issue that will help the bank get rid of 18 billion euros of bad debt from its balance sheet and is expected to boost chances of profitability. The bank currently has 3800 branches across the country, a third of which would be closed down permanently by the next year.
It is a critical time for Italian banks as the economy had been going through a crisis and last week’s referendum has surely increased their woes. Italy’s third largest bank and one of the world’s oldest bank, Monte dei Paschi di Siena is at a risk of failure as it is making a last-ditch attempt to raise 5 billion euros and escape a bail-out.
UniCredit’s decision has come after Italian Prime Minister Matteo Renzi resigned, post losing the referendum of constitutional change and the new government has just been formed with expectations of early elections next year.
Shares in UniCredit fell more than 5% on Tuesday. The stock has fallen by more than half this year and the bank is now worth just under 15 billion euros. Jean-Pierre, chief executive of UniCredit said that the bank is trying its best to deal with the loan issues and wants to improve future profitability to become one of Europe’s most attractive banks.
The bank’s target is to get its core capital ratio - a key measure of financial strength - above 12.5% by 2019, as well as post net profits of €4.7bn and resume dividend payments in that particular year.