UniCredit Hits 4-Year Low as Capital, Succession Concerns Mount

  • Shares touch lowest since July 2012; succession may take weeks
  • Barclays analysts say asset sales would lift capital, hurt ROE

UniCredit SpA’s shares extended losses, dropping to the lowest in almost four years, as analysts said its next chief executive officer faces a difficult challenge to boost capital and that a drawn-out succession process may indicate discord on the bank’s board.

The shares fell 2.7 percent to 2.32 euros at 11:35 a.m. in Milan and touched the lowest since July 2012. CEO Federico Ghizzoni, 60, agreed to step down last month, paving the way for a successor to shore up capital buffers, potentially through selling assets or new stock.

“The new CEO of UniCredit will face the difficult task of strengthening the capital position, while trying to avoid profitability declines or creating dilution,” Marta Bastoni and Rohith Chandra-Rajan, analysts at Barclays with an underweight rating on the shares, wrote in a note on Monday. Selling the bank’s most profitable investments “would solve most of the capital concerns, but profitability would be hurt significantly.”

While the bank’s board met last week to discuss the type of manager required for the job, the process may take weeks, according to people familiar with the matter. That may be a sign that there’s “little agreement among shareholders,” Luca Comi, an analyst at ICBPI, wrote in a note on Friday.

UniCredit has dropped about 54 percent this year, making it the third-worst performer in the Bloomberg Europe Banks and Financial Services Index, which is down 25 percent. The shares have lost about 82 percent of their value since Ghizzoni took the top job in September 2010, declining every year except one.

Book Value

UniCredit’s 0.28 price-to-book ratio, a measure of its stock price against the value of assets on its balance sheet, trails the 0.70 ratio at its nearest Italian rival, Intesa Sanpaolo SpA, and 0.63 at Spain’s Banco Santander SA.

UniCredit will choose a new CEO within two months, Chairman Giuseppe Vita told Il Sole 24 Ore in an interview published Friday. While the candidate must have a banking background, their nationality doesn’t matter, he said.

People with knowledge of the process had previously said Ghizzoni’s possible successors include Marco Morelli, head of Bank of America Corp.’s Italian operations, and Mediobanca CEO Alberto Nagel. Other candidates include UBS Group AG investment-banking chief Andrea Orcel; Deutsche Bank AG’s top executive in Italy, Flavio Valeri; the head of Credit Agricole SA’s Cariparma unit, Giampiero Maioli; Cassa Depositi e Prestiti SpA CEO Fabio Gallia; and former UniCredit investment-banking boss Jean-Pierre Mustier, the people said.

Potential Sales

Ghizzoni’s November strategic plan was seen by some investors as not ambitious enough to shake off the bank’s status as one of Europe’s most poorly capitalized lenders. He later repeatedly ruled out selling shares, instead focusing on improving profit and divesting assets as well as lowering costs.

Under the latest business plan, the company announced thousands of job cuts and lowered its annual profit target for 2018 to 5.3 billion euros ($6 billion) from 6.6 billion euros. UniCredit’s common equity Tier 1 ratio, a measure of financial strength, fell to 10.5 percent at the end of March from 10.7 percent three months earlier.

Among options to boost its capital buffers, the lender is considering the sale of a stake in online broker FinecoBank SpA and reviewing holdings in Poland and Turkey, people with knowledge of the discussions said in May. No decision has been made and the management change may affect the outcome, they said.

The Barclays analysts said that stake sales in Turkey, Italy and Poland may help boost the lender’s CET1 ratio to an estimated 12.1 percent, but it could also cut the return on tangible equity, a measure of profitability, to 5.6 percent in 2018 from 7 percent.

“We believe it will be difficult for the stock to perform in line with the market, given the ongoing concerns on governance, capital and profitability,” they wrote.

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