UniCredit SpA, Italy’s biggest bank, offered to buy back as much as 3 billion euros ($3.9 billion) of Tier 1 and Tier 2 bonds as part of its plan to boost capital.
“The purpose of the invitation is to support UniCredit’s strategy for optimizing its capital structure,” the Milan-based lender said in a statement today. The buyback “will generate profits and thereby increase core Tier 1 capital,” it said.
Chief Executive Officer Federico Ghizzoni is raising money to plug a capital shortfall and comply with European Banking Authority targets. UniCredit, which is also selling 7.5 billion euros of new shares, will post a capital gain of 490 million euros if the maximum is paid out on the bond repurchases, according to the bank’s prospectus.
“It’s another step to recapitalize itself,” analysts at Banca Akros wrote in a note. “We were expecting such moves by the Italian banks to optimize their capital positions.”
UniCredit rose 4.8 cents, or 1.3 percent, to 3.80 euros in Milan trading today, valuing the company at 22 billion euros.
The holders of 10 bonds, who have until Feb. 3 to accept the cash offer, will receive 50 percent to 87 percent of the face value, depending on the securities. The purchase involves 4.3 billion euros of euro-denominated bonds and 1.1 billion pounds ($1.7 billion) of sterling securities, the bank said.
UniCredit estimates its core Tier 1 ratio, a key measure of financial strength, will improve by as much as 10.9 basis points if the offer is fully subscribed, according to the prospectus with the terms of the purchase.