MILAN (Reuters) - Italy’s biggest bank UniCredit on Tuesday launched the sale of a 17 percent stake in online brokerage business FinecoBank as part of efforts to bolster the group’s financial strength.
UniCredit stands to make a big capital gain on the placing of just under half its holding in Fineco. UniCredit’s total stake of 35.35 percent has a market value of 2.4 billion euros ($2.7 billion) and a book value of 981 million euros.
UniCredit flagged the possible stake sale early on Tuesday and later said it had begun the process to place the shares with investors, known as an accelerated book build.
It said the sale was part of planned asset disposals designed to ensure the bank would meet a target of being at the upper end of a 200-250 basis points core capital buffer it wants to maintain over and above regulatory requirements.
In recent months, UniCredit took a hit on its Turkish assets and paid to settle an Iran sanctions case with Washington, ending 2018 with a core capital ratio of 12.07 percent, down from 13.6 percent a year earlier.
The bank will also gradually reduce its exposure to Italian government bonds and cut its bad loan portfolio to exceed a 2019 target for a reduction of 14.9 billion euros in soured debts at its so-called non-core unit.
High domestic bond holdings have eaten into the capital base of Italian banks over the past year due to a high spread between Italian and German government bonds.
Russell Quelch, financials analyst at Redburn, said the plan could revive concerns over capital pressure on the bank.
“However, this decision does seem more strategic than forced as UniCredit are currently on course to meet management capital targets” of a 2019 core capital ratio of 12-12.5 percent, he added.
To ensure Fineco will not be penalised by the sale, UniCredit will provide a financial guarantee to allow Fineco to gradually eliminate by 2024 an 8.3 billion euro portfolio of UniCredit bonds it currently holds.
Fineco would continue to replace the UniCredit bonds with government bonds as they came to maturity. In the meantime, the guarantee would allow Fineco to continue not having to set aside capital to offset its exposure to UniCredit, even if they were no longer part of the same group.
UniCredit is under pressure to increase revenues after focusing on cost cuts in recent years.
Like other Italian banks, it is suffering from political instability in the euro zone’s third-biggest economy, whose populist government is struggling to kick-start growth.
Though news of the stake sale weighed on Fineco shares, which lost 7.5 percent on Tuesday to close at 10.25 euros, analysts said a split from UniCredit would be positive in the long run for the business, which currently enjoys limited synergies with the rest of the group.
“Fineco is a profitable, well run, successful and low capital intensive business,” Citi analysts said. “We believe that a fully independent Fineco can accelerate its organic growth.”
CEO Jean Pierre Mustier started reducing the bank’s stake in Fineco when he arrived at UniCredit in mid-2016 with a mandate to beef up the bank’s capital strength and turn it around.
Mustier sold a 10 percent stake in Fineco for 328 million euros in July 2016 and a further 20 percent for 552 million euros in October of the same year.
The French investment banker, who analysts think has been preparing UniCredit for a merger by selling off bad loans and raising capital, will present a new business plan in December.
UniCredit is at the centre of speculation on cross-border mergers as a potential suitor for Commerzbank following the collapse of the German bank’s merger talks with Deutsche Bank.
Additional reporting by Helen Reid in London; Editing by Mark Potter and Jane Merriman