By Silvia Aloisi
MILAN (Reuters) - UniCredit (MI:CRDI) is slashing its workforce by 14 percent and looking to restructure or sell businesses in Austria and Italy as it seeks to bolster its finances without asking shareholders for cash.
UniCredit, the latest major European bank to announce an overhaul to boost profits and increase capital, unveiled a new business plan on Wednesday that forecast a CET 1 capital ratio - a key measure of financial strength - of 12.6 percent in 2018.
The ratio would drop to 11.5 percent after dividend payments but is above a target of 10 percent in a plan last year that had to be scrapped because it was based on an over optimistic economic outlook and a more lenient regulatory framework.
The bank, Italy's biggest measured by assets, said net profit for 2018 was now expected to be 5.3 billion euros ($5.7 billion), down from 6.6 billion envisaged previously.
Job cuts will total 18,200, mainly in Italy, Germany, Austria and central and eastern Europe.
The overall figure is higher than expected but includes 6,000 jobs that will go with the previously announced sale of its Ukrainian business and joint-venture for the bank's Pioneer asset management with Santander (MC:SAN).
Unicredit is targeting cost cuts of 1.6 billion euros and said that by end-2016 will either exit or revamp poor performers, such as its retail business in Austria and leasing operations in Italy. Cost cutting will be partly offset by a 1.2 billion euro investment in digital technology.
"It's a rigorous, serious and ambitious plan which I think they can pull off without the need for a cash call," Ifigest fund manager Roberto Lottici said. "If the market was 50-50 on a capital increase before I reckon now it's something like 20-80."
"NO GAME CHANGER"
Shares in the bank extended earlier gains after the release of the plan to trade more than 3 percent higher, but later lost some ground. By 1558 GMT (10:58 a.m. ET), they were up 0.5 percent, in line with the European bank index (SX7P).
CEO Federico Ghizzoni said his plan was realistic and entirely self-financed: "We are fully confident of its successful execution."
Some analysts, however, were disappointed the bank did not announce more aggressive asset sales, particularly in central and eastern Europe, and said the core capital target remained too soft. One broker said the plan was full of promises but there was no strategic "game changer", which meant the bank might struggle to achieve its goals.
UniCredit, which operates in 17 countries, became Italy's most successful international bank under Ghizzoni's predecessor, who bought several lenders in central Europe, as well as Germany's HVB, between 1999 and 2005.
Historically, the bank's broad international exposure helped to offset weakness in Italy's economy. But some now see it as a liability, inflating costs, duplicating corporate centers and leaving the bank vulnerable to the volatility of countries such as Russia and Turkey.
In a sign of the challenges the bank faces to increase profitability, its third-quarter net profit fell 30 percent to 507 million euros from a year earlier - although it beat an analyst consensus distributed by the bank of 458 million euros.
The bank booked 400 million euros of one-off charges linked to writedowns in Ukraine and Croatia.
As a result, nine-month profits stood at 1.5 billion euros compared with more than 2.7 billion euros for domestic rival Intesa Sanpaolo (MI:ISP), which earns 80 percent of its revenues in Italy and has a high CET 1 ratio of 13.4 percent.
UniCredit's CET 1 ratio was 10.53 percent at the end of September, below a 12 percent average for major European banks.