Italy’s UniCredit unveils new strategy as restructuring ends

The plan, the first since chief executive Andrea Orsel, in April, targets annual revenue growth of about 2% and profit growth of 10% through 2024.

UniCredit, Italy’s second largest bank by assets, said it would distribute at least €16 billion in dividends, the equivalent of $18.2 billion, to investors and share buybacks over the next three years. It said it would invest €2.8 billion in its digital and data infrastructure over the same period.

UniCredit shares rose nearly 7% after the bank unveiled the plan.

“With this strategy we will deliver materially enhanced and growing shareholder returns while growing our business and maintaining capital strength,” said Mr. Orsell.

The bank’s new strategy marks a change from the years in which its primary focus was consolidating its capital position. To this end, Mr. Orcell’s predecessor, Jean-Pierre Mustier, raised €13 billion in new capital, sold several assets, including billions of euros in bad loans, and eliminated thousands of jobs.

The plan comes at a time of rising inflation, supply-chain disruptions and economic uncertainty induced by the new Omicron variant, which is spreading rapidly in Europe, where UniCredit operates.

Italy’s economy, where UniCredit makes up about half of its revenue, is projected to grow a little over 6% this year, after a 9% reduction in GDP in 2020 amid pandemic-related lockdowns. The eurozone economy is expected to grow by 5% this year.

But economists warn that Europe’s economic recovery, with which banks’ revenue growth is closely related, could slow sharply into 2022 after a strong rebound this year.

When the pandemic hit Italy, UniCredit and other banks made strong progress in easing the mountains of bad loans that had been plaguing them for years, some of them hangovers from the global financial crisis.

UniCredit and other Italian banks are still sitting on largely unused provisions for credit losses accumulated during the 2020 pandemic-related recession. Government-funded schemes, such as the furlough program to help businesses, helped banks avoid a new wave of bad loans, as happened during the fiscal and sovereign-debt crises.

Nevertheless, the pandemic, a prolonged period of negative interest rates and the need for costly investments in information technology and staff retraining are forcing many banks in Europe to reevaluate their strategies. Last year, Intesa Sanpaolo SpA acquired UBI Banca SpA, overtaking UniCredit as Italy’s largest lender by assets.

Unlike his predecessor, Mr. Orcell has said he is open to considering acquisitions of other banks. He held talks for six months with Italy’s finance ministry to buy some of the assets of troubled lender Banca Monte dei Paschi di Siena Spa, which was nationalized in 2017. However, UniCredit’s talks with the government broke down in October.

The bank said it will hire an additional 3,600 employees to strengthen its business network and make the bank more digital.

Prior to taking over the reins of UniCredit, Mr. Orcel left Swiss bank UBS Group AG in 2018 after being offered the chief executive position at Spanish lender Banco Santander SA by its powerful president, Ana Botín. But the deal fell through months later when Santander said it could not justify his €50 million-plus compensation package.

Mr Orcell sued Santander for approximately €100 million in damages, later reduced to €75 million, alleging that the bank offered him a contract and broke it. Ms Botín and Santander defended their U-turn on Mr Orcel’s appointment, saying an offer letter does not constitute a contract under Spanish law. A Spanish court ruling on the dispute is expected in the coming weeks.

This story has been published without modification in text from a wire agency feed