The Italian global banking company UniCredit Group may lose its chief executive as early as this week against the backdrop of the opening of a new office in Spain.
CEO Federico Ghizzoni has been fighting an uphill battle against the shareholders as they are frustrated with the share price performance. They had made it clear now is a good time for Ghizzoni to step down.
A big part of the dissent stemmed from Ghizzoni’s decision to expand business in Spain. In an environment where the interest rates have fallen below zero, several Europe’s major banks are looking for ways to retrench their business to bolster profitability. The general consensus among the investors is streamlining, not expanding.
To clarify its expansion, the company cited its goal to be a leader in both corporate and investment banking between Spain and its main markets, including Italy, Germany, Austria, and Central and Eastern Europe. In 2015, Spain’s exports to Germany, Italy, Austria, and Central and Eastern Europe accounted for €77 billion, which is 30% of total Spanish exports.
UniCredit aims to tap into that huge stream of profit and contribute to the growth of Spanish companies. The problem here is volumes and fees decline is plaguing Spain’s dominant lenders.
But it’s not the only problem UniCredit is facing. Capital is another big hurdle on its path as it has one of the lowest core capital levels in Italy when taking regulatory minimum into consideration. The company sets a capital level target of 12.5% by 2018 from the current level of 11%.
It is actually harder than it sounds. To achieve that goal, the company needs to raise $6.7 billion, a third of its current market capitalization, through asset sales and severance of selected revenue streams. Even that, it would not be able to raise enough money.
The company is the fourth-worst performer in the Bloomberg Europe 500 Banks Index as its shares have slided 41.5% this year. The investors have been advocating for injecting new blood into the company. The company is planning an extraordinary board meeting for Tuesday where a decision to look for a new CEO will be made.
The company’s shares rose 2.8% following the announcement.
If you want to harness the wisdom and insights from the crowd to monitor your portfolio free of charge, please sign up for myMarkets.