UniCredit SpA (UCG), Italy’s biggest bank, posted a record 15 billion-euro ($20.8 billion) fourth-quarter loss as it set aside money for bad loans and wrote down goodwill from acquisitions. It plans to cut 8,500 jobs.
Provisions for doubtful loans soared to 9.3 billion euros in the quarter, more than double the year-ago level, while impairments, including those on the goodwill of units in Italy, central and eastern Europe and Austria, amounted to more than 9 billion euros, the Milan-based lender said today.
Chief Executive Officer Federico Ghizzoni is cleaning up the balance sheet as the European Central Bank reviews lenders before taking over banking supervision in November. The 58-year-old CEO plans to trim about 6 percent of the workforce to improve profit as part of a five-year project announced today. The writedowns are a legacy of his predecessor, Alessandro Profumo, who spent about $60 billion on European takeovers from 2005 to 2008. Investors pushed the shares to the highest in more than two years, betting the cleanup will work.
“They’re dealing with the past and everyone was aware that they were still dragging around some legacy issues,” said Christian Hamann, an analyst at Hamburger Sparkasse who rates UniCredit shares hold. “Investors are concentrating on the outlook and that’s pretty positive.”
UniCredit rose 6.2 percent to 6.42 euros in Milan trading, the biggest gain since September 2012. The stock is up 64 percent in the past year, outpacing the 14 percent gain in the 43-company Bloomberg Europe Banks and Financial Services Index.
The bank plans a stock dividend of 10 cents a share for 2013, though shareholders will have the option of requesting cash. UniCredit paid a nine cent-a-share cash dividend on 2012 earnings. The lender said it plans to pay out 40 percent of profit as dividends, on average, through 2018.
The loss exceeds the 10.6 billion-euro loss UniCredit posted in the third quarter of 2011, when Ghizzoni took an 8.7 billion-euro impairment charge that included goodwill writedowns on its investment bank, the purchase of Germany’s HVB Group and businesses in Ukraine and Kazakhstan.
Goodwill represents the amount paid for a company above the fair value of its assets, and includes intangibles such as its brand, customer base and reputation.
The loss announced today is among the biggest ever in Europe, and compares with the 21.2 billion-euro loss reported by Spain’s BFA-Bankia in 2012, as well as Royal Bank of Scotland Group Plc’s 24.1 billion-pound ($40.1 billion) loss and UBS AG (UBSN)’s 20.9 billion Swiss franc ($23.8 billion) loss, both in 2008. UniCredit had a 14 billion-euro loss for all of 2013.
Ghizzoni is targeting 2 billion euros of net income in 2014 as Italy begins to emerge from its longest recession in decades.
As part of the cleanup, UniCredit increased provisions to cover 52 percent of its impaired loans at the end of last year. The bank also plans to reduce the assets in its non-core portfolio of riskier Italian loans by about 63 percent to 33 billion euros by 2018, and will report separate financials for the unit.
“We have further reinforced our balance sheet,” Ghizzoni told reporters at a press conference in Milan. “We are confident we will pass the asset quality review.”
Revenue in the quarter rose 5.2 percent to 5.98 billion euros, boosted by higher income from lending and trading. The bank also booked a 1.2 billion-euro capital gain from the revaluation of its 22 percent stake in the Bank of Italy.
UniCredit is planning an initial public offering of a minority stake in its Internet bank unit, Fineco SpA, the company said. Fineco offers Internet banking and wealth management, focusing on consumers. The unit has 2,400 financial advisers, 900,000 customers and manages 40 billion euros of assets, according to the bank’s website.
UniCredit said it started talks with a single bidder to sell its Ukrainian units before unrest in the country escalated last month. Ghizzoni said in the press conference discussions were continuing “despite the difficult environment.”
It’s also seeking offers for UniCredit Credit Management Bank SpA, a unit that manages non-performing loans, as Italy’s banks consider ways to move bad loans off their books, Ghizzoni said.
UniCredit said it had 699 million euros in restructuring costs in the quarter as part of a wider plan to reduce the workforce. Job reductions will lead to 300 million euros in savings in 2016 and 700 million euros starting from 2018. Some 5,700 jobs will be cut in Italy, the lender said.
The ECB is working with local regulators on a yearlong asset quality review of the loan and trading books of about 128 of the euro region’s largest banks. Those that fail will need to raise capital, seek mergers or be wound down.
Europe’s political leaders asked the Frankfurt-based ECB to take over supervision of the region’s banks to shore up confidence in an industry hurt by a swathe of taxpayer-funded bailouts during the financial crisis.
More than 20 auditors were scheduled to start on-site inspections at UniCredit yesterday, the Bank of Italy said in a document last month.
“This is the visibility moment we were hoping for and will force investors skeptical on the asset quality of the bank to look at it from a different standpoint,” Andrea Filtri, a London-based analyst at Mediobanca SpA, said in an e-mailed comment after today’s release.
The lender’s common equity ratio under fully-applied Basel 3 rules, a key measure of financial strength, was 9.4 percent.
To contact the reporters on this story: Sonia Sirletti in Milan at email@example.com; Francesca Cinelli in Milan at firstname.lastname@example.org; Elisa Martinuzzi in Milan at email@example.com
To contact the editors responsible for this story: Frank Connelly at firstname.lastname@example.org Dan Liefgreen