UniCredit has announced a radical restructuring plan to raise €13 billion in capital to return the Italian bank to profitability. It includes cutting 11 percent of its workforce and getting rid of its vast debt portfolio.
The bank also plans to embark on the country's biggest share issue in the first quarter of 2017.
UniCredit intends to remove €17.7 billion worth of bad debt from its balance sheet to increase profits and dividend payouts.
The bank wants to increase its capital ratio to above 12.5 percent in 2019.
As part of the three-year plan, the lender will cut an additional 6,500 jobs, bringing the total to 14,000. UniCredit expects the measure will bring €1.7 billion in annual savings.
"We are taking decisive actions to deal with our non-performing-exposure legacy issues to improve and support recurring future profitability to become one of Europe's most attractive banks," Chief Executive Jean Pierre Mustier said in a statement.
The bad loans are to be sold in two parts, one managed by Fortress Investment Group and the other by PIMCO, according to Reuters. The Italian bank would retain minority stakes in each.
“With almost no revenue growth in the foreseeable future, the plan is focused on cutting costs and improving the asset quality and capital levels,” Luigi Tramontana, an analyst at Banca Akros, said in a note to clients, as quoted by Bloomberg.
The UniCredit CEO insists political turmoil in Italy will put obstacles in the way of the plans.
“The referendum was a No but it doesn’t change our business model,” Mustier told the Financial Times.
Earlier this month, Italy voted against constitutional reforms proposed by former Prime Minister Matteo Renzi, who later resigned. Renzi proposed to reduce the country’s legislature and tackle red tape in lawmaking, but the reforms were criticized for giving too much power to the prime minister and damaging the system of checks and balances.
According to Mustier, his program will help UniCredit avoid the problems facing its rival Monte dei Paschi, which needs to raise €5 billion.
“The Monte dei Paschi situation will be solved, and by the year-end. There will be no overhang from Monte dei Paschi,” he said.