Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Ciao. UniCredit CEO Federico Ghizzoni's decision to step down is welcome, but was only the easy part. Now, the Italian bank needs to make a break with the past.

Ghizzoni Exit
UniCredit shares have picked up in anticipation of management change
Intraday times are displayed in ET.

Ghizzoni's exit show how much shareholders had lost confidence in the lender's capital cushion and the rising cost of being the only systemically important bank in a country of weak, fragmented lenders.

As Cheap as Deutsche?
Capital concerns have taken UniCredit's price-to-book ratio down to almost level with Deutsche Bank
Source: Bloomberg

Finding someone who can clear out management, restructure a complex business model, raise much-needed capital and convince investors to stay on board will be a tall order.

Firstly, the bank needs to install an outsider as CEO. This is not easy. The mooted candidates come from outside UniCredit -- which is encouraging -- though they're no strangers to Italian banking.

Marco Morelli was deputy CEO of Intesa Sanpaolo and an executive at Monte Paschi before joining Bank of America. Flavio Valeri runs Deutsche Bank's Italian operations. Not one, but two, executives at UBS are being touted -- CEO Sergio Ermotti and investment-bank chief Andrea Orcel -- but it would take a lot to poach either.

A foreigner would be ideal but would be even harder to find. Frenchman Jean-Pierre Mustier has been named -- but he worked with Ghizzoni for years at the helm of UniCredit's investment bank.

Hiring an executive from outside Italy wouldn't be impossible, especially given insurer Generali's recent pick of Frenchman Philippe Donnet as CEO. But it would require the support of the Italian foundations that are among UniCredit's biggest shareholders. They should be open to the idea.

Then there's the worry of how short the new CEO's leash will be.

There is support from some quarters of the board for Ghizzoni to step to the post of chairman, though that's only a possibility at this stage. That shouldn't happen -- it would hamper the new CEO's scope for a radical strategy revamp -- and there's every chance it won't. But the fact it's being considered shows it's not easy to arrange power transfer that's both orderly and radical.

Fresh eyes would allow the bank to properly address its capital shortfall. UniCredit's capital ratio is one of the lowest in Italy relative to the regulatory minimum, yet Ghizzoni had sought to rely on asset sales and job cuts to avoid a stock sale that now looks necessary and urgent.

Capital Concerns
UniCredit's core capital ratio trails peers
Source: Bloomberg Intelligence

For UniCredit to get to a 12.5 percent capital ratio by 2018 it would need to raise 6 billion euros ($6.7 billion), according to Barclays analysts. That's a third of its current market value.

The new CEO will need to raise a convincing amount of fresh equity -- and potentially balance it with asset sales -- but also have a convincing story and strategy to tell investors.

UniCredit shares rose as much as 2 percent on Tuesday following Ghizzoni's announcement. Given the uncertainty around who is going to take the helm and how convincing the restructuring will be, even that restrained joy may quickly dissipate.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net