UniCredit SpA’s board will consider approving a share sale of 7.5 billion euros ($10.3 billion) to strengthen capital, two people familiar with the situation said Sunday.
The strategic committee of Italy’s biggest bank met in Milan Sunday and recommended the stock sale, which is expected to be approved Monday by directors, said the people, who asked not be named because the discussions are not public. The board also is scheduled to approve quarterly earnings and the bank’s new business plan.
Chief Executive Officer Federico Ghizzoni is preparing the biggest Italian stock sale in more than two years, as well as seeking to cut costs and shed jobs to comply with a regulatory deadline to bolster capital by June.
UniCredit has the biggest capital shortfall among Italy’s lenders, the EBA said last month. The Milan-based bank must reach a core capital target of 9 percent by June 30 after writing down sovereign debt holdings, and it has until Dec. 25 to submit its money-raising plans to national supervisors.
UniCredit, which has a capital shortfall of 7.4 billion euros according to the European Banking Authority, has received the green light from the Bank of Italy to count as much as 2.4 billion euros of convertible and subordinated hybrid equity- linked securities, known as CASHES, as core capital, a person familiar with the matter said Nov. 9.
A share sale is likely to be backed by the bank’s non- profit foundations, which hold more than 11 percent of its capital. The largest foundation is Fondazione Cariverona, which owns 4.2 percent.
Global coordinators for the rights offer will be Bank of America Corp. Merrill Lynch, Mediobanca SpA and UniCredit, according to two people familiar with the plan. Joint bookrunners are JP Morgan Chase & Co., BNP Paribas SA, Societe Generale SA, Deutsche Bank AG, UBS AG, Credit Suisse Group AG and HSBC Holdings Plc, while co-bookrunners will be ING Groep NV, Banco Santander SA, Royal Bank of Canada and Royal Bank of Scotland Group Plc., the people said. The bank is likely to start the regulatory process for the sale in January.
UniCredit has raised 7 billion euros in the last three years through two capital increases, including a rights offer and a convertible-bond sale. At that time the foundations bought new shares and bonds to finance the lender after credit markets froze following the bankruptcy of Lehman Brothers Holdings Inc. in 2008, while renouncing the right to dividends.
Complicating the planned stock sale is the 7.6 percent stake in the bank owned by Libya’s central bank and sovereign wealth fund, which is frozen by the European Union, U.K. and U.S. as part of their effort to cut off former Libyan leader Muammar Qaddafi’s access to funding.
UniCredit has lost about half of its value this year, compared with a 32 percent decline of the 46 firms tracked by the Bloomberg Banks and Financial Services Index. The bank has a market value of about 15.9 billion euros.
The board will also review a cost-cutting program, which may include the exit from research, sales and trading for western European equities, two people said Nov. 11. The board will weigh an agreement to transfer equity units that employ about 150 people to a competitor.
UniCredit may incur a cost as part of such an arrangement, and the Italian bank, which initially won’t have a stake in the merged business, will retain its central and eastern European brokerage, said one of the two people.
UniCredit has “a lot of room to deliver on cutting costs,” said Pedro Fonseca, an analyst at Berenberg Bank in a Bloomberg TV interview on Nov.11. Intesa Sanpaoplo SpA, Italy’s No. 2 bank, “did surprise the market on a positive, announcing a further headcount reduction than we expected. Hopefully, UniCredit will do the same.”
The bank is preparing to announce job reductions tomorrow as part of its business plan, Gabriele Piccini, country manager for Italy, told reporters today. The cuts will be agreed with labor unions, he said.
UniCredit last month reorganized its securities sales to combine regional activities within equities and credit after hiring Jakob Groot and Michael Baptista. Cash equity sales are headed by Baptista in London, the bank said on Oct. 25.
The firm’s equity research unit covers about 400 companies from Munich, Vienna, Milan and London. The firm’s equity-sales business isn’t among the top three in Italy and Germany as ranked by Thomson Extel in its 2010 survey.
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