Investors welcomed a pledge by new UniCredit Chief Executive Andrea Orcel to return at least 16 billion euros to them under his new strategy to 2024. This is by sending the Italian bank‘s shares to a 22-month high. UniCredit plans to generate sufficient new capital to pay out as cash and share buybacks almost two thirds of its market value. And that has shrunk after the pandemic thwarted previous CEO Jean Pierre Mustier’s bet on shareholder compensation.
In a market presentation Orcel told that whatever they do with this group, they need to maintain their distribution at levels that are rewarding shareholders for all they have done. Mustier in 2017 raised 13 billion euros from shareholders. This is for funding the UniCredit’s restructuring in one of Europe’s biggest cash calls. Shares in UniCredit, which lost its number one ranking last year to Intesa Sanpaolo after it snapped up smaller peer UBI, have been trading at a big discount to the sector.
They shot up 11% to 12.8 euros on the much larger-than-expected capital distribution goal. With its excess capital reserves intact, UniCredit will still be in a position to evaluate potential mergers and acquisitions. Only a large M&A transaction could cast doubt on the capital return goal. He said that they cannot squeeze this group and not do the things they need to do. Because they are hostage to the 16 billion. Ditching its current 50% payout ratio, UniCredit plans to return 3.7 billion euros in 2022.
2022 is still a year of consolidation according to Orcel. Net profit is projected to top 4.5 billion euros in 2024. It is growing on an average by 10%. UniCredit will bet on fees earned on the sale of wealth management and insurance products. So that, this can drive revenue up 2% a year. Orcel said UniCredit would reduce to just two or three its many insurance partners and revise agreements to retain a bigger share of placement fees. UniCredit will bet instead on capital light businesses, including advisory and capital markets, in the next three years. This is to lift its return on equity to 10% in 2024 from around 7% this year.