UniCredit set to start search for new CEO

MILAN (Reuters) - UniCredit is set to formally start the search for a new chief executive on Tuesday in a move expected to lead to a broader shake-up of the Italian bank and possibly a multi-billion euro capital increase, several sources said.

UniCredit Chief Executive Officer Federico Ghizzoni smiles during an event to launch a new Spanish office at the stock exchange in Madrid, Spain, May 23, 2016. REUTERS/Susana Vera

Italy’s top lender by assets has called an extraordinary board meeting for Tuesday at 4 p.m. local time (1400 GMT) to discuss governance issues and the replacement of embattled CEO Federico Ghizzoni, a source close to the matter told Reuters on Monday.

Ghizzoni, who has led UniCredit since 2010, was expected to submit his resignation on Tuesday but could stay on until a successor is found, according to two other sources.

The soft-spoken, mild-mannered 60-year old has faced growing shareholder discontent over the bank’s falling share price, stretched capital position and low profitability.

Among candidates tipped to replace him are Jean-Pierre Mustier, a former Societe Generale and UniCredit executive, UBS’s investment banking boss, Andrea Orcel, the head of Mediobanca, Alberto Nagel, and Merrill Lynch’s Italy chief, Marco Morelli.

The choice is likely to hinge on whether the board considers the possibility of merging with another bank, with Orcel or Nagel seen as candidates that could lead Unicredit into a tie-up. Alternative options include cutting back on UniCredit’s sprawling international network to boost finances, or undertaking a capital increase, sources said.

A decision on a new CEO is expected by another board meeting on June 9, but could come much sooner.

Speaking to reporters in Madrid on Monday, Ghizzoni did not answer questions about his future, only saying “nothing dramatic” was happening at the bank and that the situation was under control.

Shareholders representing 15 percent of the bank took a major step towards ousting Ghizzoni last week by asking Chairman Giuseppe Vita to find ways to strengthen governance, including possibly replacing the CEO.

However, pay could be a hurdle for what industry insiders see as a daunting job. Ghizzoni made 3.2 million euros ($3.6 mln) last year - whereas UBS paid Orcel nearly $26 million (18 million pounds) to join as co-chief executive of its investment bank back in 2012.

Rumours of investor dissatisfaction with Ghizzoni have dogged the bank for months as UniCredit, Italy’s only globally systemically important financial institution, failed to put to rest worries it may need a capital increase.

Its core capital fell to 10.5 percent at end-March, just above a 10 percent minimum threshold set by the European Central Bank for this year, which will gradually rise to 11 percent in 2019.

Analysts say UniCredit may need between 5 billion and 10 billion euros in fresh capital.

The lender’s shares have plunged more than 40 percent this year in a rout of Italian banking stocks, and dropped another 3 percent on Monday to 2.9 euros ahead of the board meeting. In comparison, shares of rival Intesa Sanpaolo, which has a core capital ratio of 13.1 percent and is twice as profitable as UniCredit, have dropped 29 percent in 2016.

UniCredit’s decision-making process was also called into question after it became the sole guarantor of a risky 1.5 billion euro capital increase at Banca Popolare di Vicenza. In the end, a pool of Italian financial institutions stepped in last month to backstop the capital call.

Bankers say the new CEO will need to revamp, and possibly prune, the bank’s international operations, now spanning 17 countries after a buying spree in Germany and central Europe.

While in the past such a broad exposure helped offset weakness in Italy’s economy, it is now seen by some as a liability, inflating costs and leaving the bank vulnerable to the volatility of countries like Russia, Ukraine and Turkey.

The Milanese lender may cut stakes in online broker Fineco, Poland’s Bank Pekao and Turkey’s Yapi Kredi, a source said last week. Selling all three could net 8.2 billion euros, but would also deprive the bank of units accounting for 44 percent of its profits, Kepler Cheuvreux said.

Additional reporting by Pamela Barbaglia and Anjuli Davies in London, Angus Berwick in Madrid; writing by Silvia Aloisi; Editing by Keith Weir and Susan Fenton