UniCredit CEO fights to keep investor confidence with new plan

By Sinead Cruise and Silvia Aloisi

LONDON/MILAN (Reuters) - As UniCredit (MI:CRDI) puts the finishing touches to an updated strategic plan to be presented to shareholders next month, some investors in the top Italian bank are raising questions about the leadership of Chief Executive Federico Ghizzoni.

The new plan to 2018, whose predecessor was scrapped because it was based on overly-optimistic macroeconomic forecasts, is central to Ghizzoni's efforts to bolster shareholder confidence in the face of the bank's stubborn underperformance.

It will be delivered on Nov. 11 and is expected to include lower profit targets, asset sales and cost cuts to allay fears of a cash call, a worry the bank has repeatedly dismissed but failed to eliminate.

"It's not that management have done nothing. But the question is, have they done enough to make me happy? I am not sure," AXA Investment Managers portfolio manager Gilles Guibout said. Paris-based AXA Investment Managers is among UniCredit's 40 largest holders.

Seen by analysts as mild-mannered and consensual, Ghizzoni, 60, may have to make some tough choices to improve the lender's capital base and slash costs.

Two foreign shareholders, who declined to be named because of the sensitivity of the matter, described Ghizzoni's leadership style as soft, with one comparing him to a "kindly old uncle."

"He's not a ruthless CEO type. There's good and bad in that. But he's been a bit too soft, a bit too slow, kept too many options open," a source at a top 15 investor in the bank said.

A bank spokesman declined to comment.

Ghizzoni has shown he can take bold measures in the past, launching a 7.5 billion euro (5 billion pound) capital increase at the height of the euro zone crisis and cleaning up the balance sheet with 14 billion euros of writedowns in 2013.

Not all investors are critical of the CEO's record.

Italian businessman Leonardo Del Vecchio, who has a 2 percent stake, said Ghizzoni was a good manager who had risen through the bank's ranks.

An anti-mafia probe however has added to Ghizzoni's worries. Prosecutors have placed three top officials at the bank under investigation over allegations of doing business with an entrepreneur linked to the Sicilian mafia.

The bank has denied wrongdoing but Italian media have said the probe had weakened Ghizzoni. Broker Intermonte said it was hard to speculate on whether he would keep his job, adding the arrival of outsiders could help the group's restructuring.

INTERNATIONAL EXPOSURE

UniCredit, which has operations in 17 countries, became Italy's most successful international lender under Ghizzoni's predecessor Alessandro Profumo, who between 1999 and 2005 bought several banks in central Europe as well as Germany's HVB.

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Historically such a broad international exposure helped to offset weakness in Italy's economy. But some now see it as a liability, inflating costs and leaving the bank vulnerable to the volatility of countries like Russia, Ukraine and Turkey. Sources have said the bank could cut around 10,000 jobs and may sell part of its central and eastern European arm Bank Austria, where costs are way above the group's average.

Such measures, which would join a wave of restructurings at European banks such as Deutsche Bank (De:DBKGn), Credit Suisse (VX:CSGN) and Barclays (L:BARC), should help raise the 2018 core capital ratio target to around 12 percent from 10 percent, two shareholders said.

The same investors expected the bank to cut a previous 2018 revenue target of 28.4 billion euros for the core business by about 2 billion euros. UniCredit said no decision has been taken concerning the Austrian business and there were no concrete numbers on possible layoffs.

UniCredit compares unfavourably with rival Intesa Sanpaolo (MI:ISP), which has a core capital ratio of 13.3 percent. At 1 billion euros, its first-half earnings were half those of Intesa, even though the latter makes 80 percent of its revenue in Italy, where credit markets are struggling under a mountain of bad loans because of the country's prolonged recession.

Intesa shares have risen 42.5 percent in the past year, compared with UniCredit's 6 pct increase. Analysts predict Ghizzoni will, at least for now, avert a cash call, but some investors say that may not be enough.

"Can he put out a business plan that's sufficiently credible on capital to make concerns about share count go away? That I think is unlikely," said the source at the top 15 investor. "They need to restructure a lot. It'll be a long slog."