Italy’s largest bank, UniCredit, plans to shed thousands of jobs and raise €13bn in the country’s biggest share issue in a bid to shore up its reserves and boost profits by the end of the decade.

The bank said 14,000 posts, or 11% of the workforce, would disappear across its businesses in Europe and 1,000 bank branches in Italy would close. About €18bn of bad loans are to be offloaded to two new businesses mainly owned by US fund managers.

The bank’s shares rose 13% as investors welcomed the “decisive” move by UniCredit to distance itself from Italy’s ailing banking sector, which is hobbled by a legacy of non-performing loans.

UniCredit chief executive, Jean Pierre Mustier, in London on Tuesday to talk to shareholders, said the move would allow the bank to offer €55bn of fresh loans to business customers and expand retail lending.

Against a backdrop of negative interest rates in the eurozone, which the bank said made it difficult to generate profits, Mustier said without a large injection of fresh capital and a lower ratio of bad loans the bank would be forced to contract further, making bigger job cuts and reducing its capacity to make loans.



“We need to turn a page on our legacy issues to improve and support recurring future profitability. The aim is to be one of Europe’s most attractive banks,” he said.

UniCredit’s move comes at a troubled time for Italian banks and the economy, with the third-largest bank, Monte dei Paschi di Siena (MPS), negotiating a rescue package, a new government installed in Rome and early elections expected next year.

Mustier said he was confident MPS would reach a deal to offload more than €5bn of loans by the end of the year.

He ruled out joining a rescue of MPS or any other Italian bank unless the government forced it to take part in a broader rescue of the banking sector.

“We are extremely confident the refinancing will be resolved by the end of the year. Our plan does not depend on a deal for MPS,” he said.

“What we are doing shows what other Italian banks can do,” he added, before saying, “We are not interested in buying other Italian banks. Our plan is for organic growth.”

If MPS fails to secure the funds, the bank will probably require a government rescue, which could be launched on Friday or next Monday and could mean at least temporary losses for thousands of retail investors. Under EU rules, state intervention can only move forward once junior bondholders have taken a hit, although some retail investors would likely be compensated later.



Paolo Gentiloni, Italy’s incoming prime minister, vowed in a speech before parliament that the Italian government was ready to intervene across the Italian banking sector “to ensure the stability of [Italy’s] banking institutions”.

UniCredit has already moved 300 staff from London to Milan following Britain’s vote to leave the European Union. Mustier said the Brexit vote was “a huge opportunity” for continental banks, which are untroubled by the prospect of Europe’s financial centre leaving the EU.

Benjie Creelan-Sandford, equity analyst at brokers Jefferies, said: “The upfront bill of €13bn is clearly large but as we have highlighted previously we think an aggressive balance sheet clean-up paves the way for a more substantial re-rating.

He said the forecast by the bank’s board of €4.7bn net profits in 2019 was well ahead of consensus expectations of €3.9bn.



But David Cheetham, an analyst at brokers XTB, was concerned a rescue by the Italian government remained a possibility if UniCredit struggled to raise vital funds.

“The Italian lender has endured a torrid time of late and the latest action appears a last-ditch attempt to stave off a government rescue, with the strategy likely to be ultimately decided by how successful the firm raises the target of €13bn,” he said.

A group of investment banks have signed a pre-underwriting agreement to help UniCredit market the issue. These include Morgan Stanley, UBS, Bank of America Merrill Lynch, JP Morgan and Mediobanca.



The bad loans would be sold to two separate vehicles, one managed by Fortress Investment Group and the other by Pimco, with UniCredit retaining minority stakes in each.