Please give generously… | FT Alphaville

Please give generously…

… because Unicredit is passing round the begging bowl.

It’s asking shareholders to back a €7.5bn cash call and trying to make it all look a bit better by pulling the old reverse stock split trick.

From the Unicredit strategic plan announcement.

The Board of Directors further resolved to propose to the EGM to proceed with a reverse stock split of ordinary and savings shares (i.e. a share grouping) based on a ratio of 1 new ordinary or savings share for every 10 existing ordinary or savings shares.

Although the reverse stock split is expected to be financially neutral, it is deemed to bear certain potential benefits, particularly in light of the proposed rights issue, including the creation of a more efficient and liquid market for the rights during the trading period.

A more liquid market. Yeah, right.

The cash call is accompanied by Q3/nine months results, which at the headline level are laughably bad.

So, that’s goodwill write off’s totalling a staggering €9.4bn, airly dismissed because it  has no impact on cash and do not affect capital ratios. It’s a good job Unicredit, which has a staggering 160,000 employees, has lined up a consortium of banks to underwrite this fund raising because would you really want to give your money to a bank with that track record of wealth destruction?

Unicredit also holds 38bn of Italian government bonds and its shares have lost half of the their value since the start of the year.

Fortunately, the Italian bank has a better story to tell at the operating level. Nine month revenues and costs are broadly in line with expectations and the net interest margin is a touch above. And the financial targets are more bullish than many brokers had expected.

For example, here’s Citigroup’s snap reaction.

UCI has disclosed also its financial targets for the period 2010 -2013/15. Looking at 2013, the target net profit of €3.8bn is c9% ahead of current consensus estimates (c€3.5bn for consensus vs. Citi at €3.1bn) and UCI expects this to be achieved with moderate revenue growth, flat costs and a more normalized level for cost of credit. UCI expects c7.9% tangible book value in 2013. Italy costs are expected down by 1.4% CAGR 2010-15

And that ladies and gentlemen in a nutshell is the pitch. Give us your money because we are putting the past behind us, refocusing on core markets, cutting costs and with a bit of luck and favourable macro economic tailwind we will be generating a return on tangible equity of 12 per cent by 2015.

And if you believe that…

More from the strategic plan.

The Plan has been developed with an underlying assumption of a balanced macroeconomic scenario over the period, with 2013 returns showing the Group’s profitability potential in a still challenging macroeconomic environment, whereas 2015 profitability highlighting the Group’s potential in a normalized environment and benefiting from the full implementation of the Plan’s strategic initiatives.

By 2013 UniCredit is expected to reach net profit of €3.8bn and ROTE of 7.9%, thanks to a combination of marginal growth in revenues, strong contribution from CEE, strict control over costs (flat between 2010 and 2013) and a gradual convergence of CoR from 2010 levels to more normalised levels. As growth will not be driven by volumes expansion, risk adjusted returns will rise from 4.2% in 2010 to 4.7% in 2013.

In 2015 net profit is expected to be €6.5bn with an ROTE of approximately 12%, thanks to a gradual pick up of the economy and the significant decrease in CoR (75bps). Direct costs will remain virtually flat throughout the Plan period, with growth in CEE to be financed through significant savings in mature markets.

Related links:
Strategic plan – Unicredit
UniCredit unveils €7.5bn share sale to boost capital – FT