UniCredit eyes a spinoff for Austrian retail bank

MILAN– UniCredit SpA is considering spinning off or selling its Austrian retail banking, according to a person familiar with the matter on Tuesday, as part of a review of its business plan aimed at improving its profitability and capital base.

The person said the business could be valued at around EUR800 million.

“No decision has been made so far nor any preferred solution is on the table,” the bank said in a statement. “In the context of low-profitability businesses, UniCredit continuously evaluates a number of potential organic and nonorganic solutions to improve the overall profitability of the Group.”

The market reacted positively to the news, with shares trading up around 2.4% in the early hours of Tuesday, compared with Milan’s FTSE MIB declining 0.3%.

Analysts at Equita Sim said that the bank could add 30 basis points to its common equity tier 1 ratio–a measure of capital solidity–after the sale, assuming the business sold has EUR10 billion in risk-weighted assets and that the bank makes no capital gain on the transaction.

“The new plan–to be unveiled in November–must necessarily include sales of significant assets to fully convince the market that the bank doesn’t need to launch a capital increase,” Equita Sim said.

In June, UnitCredit Chief Executive Federico Ghizzoni said he bank was reviewing a business plan it launched last year, as interest rates could stay low for longer than the bank assumed and erode the margins it planned to achieve on its lending activity.

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At the time, Mr. Ghizzoni said the bank could seek to compensate for the reduced margins it makes on lending with lower costs, a leaner structure in some areas of the group and more revenue coming from fees and commissions. Earlier in September, Unicredit’s head of human resources, Paolo Cornetta, said the bank is considering job cuts in its Italian, German and Austrian units.

In August, the bank’ second quarter results beat forecasts, jumping 30% higher on trading income and lower bad loan provisions. Second-quarter net profit rose to EUR522 million from EUR403 million a year earlier, compared with analysts’ forecasts of EUR501 million, according to a poll by data provider FactSet.

It also reported a better-than-expected capital position, with a Common Equity Tier 1 capital ratio with Basel 3 rules fully applied rose by 27 basis points to 10.37% from the previous quarter.

These results allayed investors’ and analysts’ concerns that bank was bound to launch a sale of new shares in the near future to shore up its capital position.

Write to Giovanni Legorano at giovanni.legorano@wsj.com

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View more information: https://www.marketwatch.com/story/unicredit-eyes-a-spinoff-for-austrian-retail-bank-2015-10-20

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