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UniCredit SpA Chief Executive Officer Jean Pierre Mustier will reward investors with 2 billion euros ($2.2 billion) of share buybacks in a new four-year strategic plan that will see about 8,000 job cuts as the Italian bank grapples with slow economic growth and negative interest rates.
The Milan-based lender, announcing its new targets through 2023, said it will boost shareholder remuneration through a combination of dividends and share repurchases. The job cuts, equal to more than 9% of the workforce, will in part come through the closure of about 500 branches. UniCredit also announced a separate buyback equal to 10% of 2019 earnings.
Mustier is seeking to drive investor returns through cost cuts and greater efficiency while signaling that the bank is struggling to boost growth in an era of negative rates. Revenue and costs are expected to be little changed through 2023, with the bank focused on eking out what it can on its own rather than attempting major deals.
The plan’s targets are “pragmatic and achievable,” Mustier said in the statement. “They are based on a realistic set of macroeconomic assumptions, being more conservative than those assumed by the market.”
UniCredit expects to deliver 1 billion euros of savings in Western Europe, partially achieved through the job and branch cuts. The expected 1.4 billion-euro cost of the initiative will be booked in 2019 and 2020.
The CEO will focus on further simplifying the bank’s structure and improving the way it allocates capital. UniCredit plans to create a sub-holding company to control its international businesses and it will further reduce its non-performing loans.
UniCredit will distribute 40% of underlying profit from 2020 to 2022, paying out 30% as a cash dividend and buying back stock equal to 10% of its earnings. The dividend will increase to 40% in 2023 with share purchases boosting total remuneration to 50%. The buyback based on 2019 earnings will increase the payout to 40% from 30% previously announced.
Ahead of the new strategic plan, UniCredit took a number of steps this year to get out of businesses that aren’t key to its operations. The bank agreed to sell a direct stake of 9% in Yapi ve Kredi Bankasi AS to Koc Holding AS, unwinding their joint venture in the Turkish lender in a move that will lead to 1 billion euros of losses. The company earlier this year also sold its holdings of Italy’s Banca Fineco SpA.
UniCredit has disclosed or hinted at many of the plan’s details in recent weeks. Mustier has said that he expects to see consolidation among European financial only after stock values rise and that the Italian lender would prefer to repurchase shares instead of doing large deals.
Despite tougher regulation in the coming years, UniCredit plans to keep its common equity Tier 1 ratio at 200-250 basis points over regulatory requirements throughout the plan. Revenue is expected to rise by just 0.8% a year through 2023, as low and negative interest rates continue to hurt earnings from lending at banks across the euro zone.
UniCredit posted a better-than-expected 26% rise in adjusted profit in the third quarter and boosted its CET1 ratio, a key measure of financial strength, after the sale of businesses.
(Updates with CEO comment in fourth paragraph.)
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