Italy’s second-biggest bank UniCredit sees its worst-case scenario of average growth at 4.6% for 2009 in central and eastern Europe, where it is focused for expansion, it said in a presentation on Wednesday.
Europe’s sixth-largest bank by market value, which has announced plans to boost capital by €6.6 billion ($8.99 billion), said it would cut capital allocated to its poorly performing Markets and Investment Banking (MIB) unit to €4.7 billion from €5.4 billion in 2009.
On Tuesday, a source close to the matter said UniCredit planned to cut 700 jobs in investment banking. It has 3,500 employees in its MIB unit. The bank has declined to comment. UniCredit is working to restore confidence in its strategy and management after a stategy U-turn at the weekend when global financial market turmoil forced it to ask shareholders for €3 billion in funds and to accept shares instead of cash as a 2008 payout.
Just two days before, a senior executive had ruled out a capital increase or a cut in the dividend -- the last of a series of management promises not to tap investors. The moves will boost key capital ratios, but the bank at the same time slashed earnings forecasts to 39 euro cents from 52 euro cents for this year.
CEO Alessandro Profumo told national television last week he would not quit, but has since admitted making strategic mistakes. He appeared tired and rubbing his eyes in a half-page photograph beside the text of an interview on Tuesday in La Repubblica.
Shares in the bank were suspended for excessive losses on Wednesday morning along with many other stocks as global markets shuddered again. One of Profumo’s biggest shareholders told La Repubblica newspaper on Wednesday there were no plans for changes in governance at the bank and managerial reputations would be discussed only after the crisis is over. “There is no foundation to that idea,” Andrea Comba, chairman of a foundation which holds 4% of UniCredit, said when asked if changes to governance were being studied. “The important thing is to exit this phase, we can think about reputations later,” Comba said when asked about Profumo’s performance.
Profumo told La Repubblica he had support from shareholders and managers. “Without doubt there is support for the management, otherwise we would not have given our money,” Comba said. His foundation will spend about €500 million in the capital increase, which is backed by convertible bonds.
Raffaele Lombardo, the Sicily regional governor, said the island would also take part in the capital increase, Libero newspaper reported. But Comba added that the make-up of UniCredit’s board, which is up for renewal in April, was under discussion. “Let’s see if the board is confirmed or whether there are substitutions. It’s open to debate,” Comba said.
Comba said the plan “took us a bit by surprise,” adding that the foundation was most worried over UniCredit’s failure to foresee the crisis. Profumo has said the bank underestimated the depth and duration of the current global turmoil. (Reuters)