UniCredit Said to Weigh Job Cuts in Sign of Profit Pressure

Updated on
  • Cuts will likely affect Italy, Germany and Austria, people say
  • UniCredit plans to complete review by the end of this year

UniCredit SpA is considering eliminating another 10,000 jobs in coming years on top of thousands of cuts already carried out, said people with knowledge of the discussions, a sign of the bank’s growing reliance on a shrinking workforce to lift profit.

Employees in Italy, Germany and Austria would probably be most affected by the reductions, two people said Thursday, asking not to be identified because the plan isn’t public.

The new reductions would bring the number of job cuts announced since last year to about 15,800, and represent about 6.8 percent of the workforce of Italy’s biggest bank, the people said.

The numbers are still under review and may change, while other countries may be affected, the people said. A decision is expected by the end of this year.

Chief Executive Officer Federico Ghizzoni, 59, is revising a business plan introduced last year, prompted by the expectation that low interest rates will continue to hurt profitability in coming years. The bank joins lenders including Britain’s Barclays Plc and Switzerland’s UBS Group AG in slashing thousands of jobs to adapt to rules that make some businesses less profitable while lending margins remain under pressure.

“In the current environment, with very low rates, you cannot count on higher profitability, so you can only act on the cost side,” said Stefano Girola, who helps manage about 25 billion euros ($27.8 billion) at Syz Asset Management SA in Lugano, Switzerland. The move would realign UniCredit with its main competitor in Italy, Intesa Sanpaolo SpA, he said.

Earlier Thursday, JPMorgan Chase & Co. analysts led by Delphine Lee downgraded UniCredit to neutral from overweight, citing pressure on net interest income from lower margins.

UniCredit shares fell 2.6 percent to 5.73 euros at 10:33 a.m. in Milan trading Friday. That was still 5.4 percent higher that at the start of the year.

Huge Costs

Ghizzoni declined to comment Friday when asked about the potential for more job cuts. The CEO had said in June that the focus would be on reducing expenses, improving returns on banking activities and expanding beyond its home market.

“A reduction of 10,000 full-time employees would have a very positive impact on the adjusted profit, about 10 percent,” said Fabrizio Bernardi, an analyst at Fidentiis Equities who has a hold rating on the stock. “A huge cost base is UniCredit’s historical problem affecting its recurring profitability and its ability to generate capital.”

UniCredit’s costs amounted to 60 percent of its income in the second quarter, while Intesa’s stood at 47 percent.

The bank’s common equity Tier 1 ratio, a key measure of financial strength, was at 10.4 percent at the end of June, up from 10.1 percent in March. Investors have urged the bank to strengthen its finances without tapping shareholders for funds.

More Cuts

The bank’s second-quarter profit rose about 30 percent to 522 million euros as it set aside fewer provisions for bad loans. Italy is emerging from a record-long recession that has weighed on lenders’ profit and capital buffers.

The new round would aim at eliminating duplication, scaling back branches and improving efficiency, one of the people said, adding that the cuts would involve several business areas, including information technology. Most of the reductions in Italy will probably come through early retirement, the person said. 

Under a revamp announced in March 2014, the bank set a target for annual profit of 6.6 billion euros by 2018, in part through cost cuts and the sale of its money-management unit and other assets. It also envisioned an overseas expansion that Ghizzoni has since indicated remains a goal.

UniCredit operates in 17 countries, with about 147,000 employees and some 8,400 branches, according to its website. The lender is among the biggest banks in central and eastern Europe, where it generates about 16 percent of revenue.