The Strategist

UniCredit is selling troubled loans

07/18/2017 - 09:52

Management of the Italian bank UniCredit reported that it has signed an agreement with Fortress Investment Group and PIMCO on sale of troubled loans worth 17.7 billion euro. These loans will now be converted into securities, and then will be offered to investors.

Pavel Ševela
Pavel Ševela
According to the agreement, one portfolio of problem loans will be allocated to a new firm, which is controlled by the hedge fund Fortress Investment Group, and another portfolio - to a company controlled by PIMCO.

UniCredit Bank will own minority stakes in both companies. In the second half of 2017, the credit institution intends to partially sell these shares and bring them to below 20%.

This transaction is part of the strategic plan Unicredit, which the bank announced back in 2016. The deal includes cutting thousands of jobs and selling new shares for 13 billion euro. In order to reduce costs, the bank intends to close 6.5 thousand job positions by 2019, bringing the number of layoffs to 14 thousand employees (UniCredit employs 101 thousand people in total). It is planned to close 944 of 3.8 thousand branches of the bank, mainly in Italy, while simplifying and modernizing products and IT-processes.

UniCredit has made every effort to get rid of troubled debts. As a result of the recession, many Italian banks have accumulated billions of euro of unprofitable loans. The volume of problem loans in the Italian banking system reaches approximately 15% of the total amount of loans issued. This is three times more than the average in Europe.

According to Morgan Stanley analysts, Italian banks will need about 10 years to reduce the share of overdue loans for total loans to 5%.

Italy is trying to overcome the legacy of the crisis era. We are talking about € 313 billion of problem loans, which impede the economy’s recovery. Last month, the government allocated € 17 billion to liquidate Banca Popolare di Vicenza SpA and Veneto Banca SpA after months of trying to keep the regional banks afloat.

Earlier this month, the Italian lender Banca Monte dei Paschi di Siena SpA presented a five-year restructuring plan. The paper includes cutting thousands of jobs and sale of assets, after the European Union said that the bank can receive billions of euro in the form of state aid.

Monte dei Paschi is planning to reduce number of personnel by 5,500 people, close 600 branches and sell non-performing loans worth € 28.6 billion by 2021, the organization said in a statement. By that time, Paschi intends to receive a net profit of more than € 1.2 billion and bring the return on equity to 10.7%.


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