• Bank said to review terms of rights offer on Wednesday

• UniCredit may start 13 billion-euro sale as soon as Monday

 

By Sonia Sirletti

 

(Bloomberg) -- UniCredit SpA is betting investors will shrug off Chief Executive Officer Jean Pierre Mustier’s bigger-than-expected clean-up charges in the run-up to its 13-billion-euro ($14 billion) share sale.

Directors of Italy’s biggest bank will meet Wednesday to review terms of the offer that may start as soon as Monday, according to people familiar with the matter. Mustier is seeking to accelerate the bank’s share sale to minimize the gap between losses due to overhaul of the lender’s finance and fresh money coming from the capital increase.

The commitment of the new CEO “increases the visibility of the execution,” Giovanni Razzoli, an analyst at Equita Sim SpA, wrote in a note Wednesday. The analyst upgraded recommendation on the stock to buy from hold because “derisking and cost cutting is almost complete.”

Since Mustier in July became CEO of a lender burdened by mounting debt and the slimmest capital buffer among Europe’s big banks, the stock has gained more 36 percent as investors bet on his ability to reshape UniCredit’s finances. In December, he outlined a turnaround plan that includes a rights offer, asset disposals and cost-cutting to restore finances and boost the balance sheet.

Earlier this week, the bank confirmed its 2019 financial targets, including one for a key capital ratio, even as it took 1 billion euros of additional charges in the fourth quarter. That brought the 2016 annual loss to 11.8 billion euros and sent the stock lower.

“Even if UniCredit’s loss was higher than expected, it is considered by investors as a legacy of the past and may turn into a positive given that it’s driven by a clean-up,” said Vincenzo Longo, a strategist for IG Markets Ltd. “The focus is all on the bank’s share sale, seen as the last step to solve the bank’s problems. Mustier is selling a medium-term equity story and so far has proved to be able to lure investors.”

Charges Grow

The 1 billion-euro additional charge -- on top of the 12.2 billion euros announced in December -- came after the lender booked a bigger writedown on its investment in Italy’s Atlante bank-rescue vehicle. It also took losses on some of its holdings and made contributions to the national fund for winding down banks, UniCredit said in a statement after markets closed Monday.

UniCredit estimated that its phased-in common equity Tier 1 ratio, a measure of financial strength, was about 8 percent at the end of 2016, short of ECB’s requirements for the year. The bank had warned in December it may miss the regulator’s threshold. The company confirmed its 2019 financial targets, including a CET1 ratio above 12.5 percent.

UniCredit was up 0.8 percent to 25.39 euros as of 10:59 a.m. in Milan trading, giving the bank a market value of about 15.7 billion euros.

UniCredit’s share sale, which comes after peer Banca Monte dei Paschi di Siena SpA failed to raise 5 billion euros in December, was previously expected to begin after fourth-quarter earnings are released on Feb 9. The bank got shareholder approval for its capital raising plan earlier this month, including a proposal to convert every 10 shares into one new share after the stock dropped 45 percent last year.

A spokesman for UniCredit declined to comment on the sale timetable.

Mustier last week concluded a roadshow to New York, London, Singapore and Hong Kong to meet investors and pitch the sale, people with knowledge of the matter have said. UniCredit last sold shares in 2012, raising 7.5 billion euros at the urging of regulators.

"I’m confident that the share sale will be successful, as the company is disposing of its non-core assets and is boosting loan-loss reserves,” said Mario Russo, an analyst at North Square Blue Oak Ltd. “The decision to bring forward the offer is a positive signal, suggesting that UniCredit and banks arranging the deal don’t see any particular issues to selling the shares.”

 

Related ticker:

UCG IM (UniCredit SpA)

 

--With assistance from Fabio Benedetti-Valentini and Francesca Cinelli. 

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To contact the reporter on this story:

Sonia Sirletti in Milan at ssirletti@bloomberg.net

 

To contact the editors responsible for this story:

Elisa Martinuzzi at emartinuzzi@bloomberg.net

Ross Larsen, Paul Armstrong