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Banking

Mustier pins UniCredit's hopes on buybacks and pay-outs

As Italy’s biggest bank unveils a new plan and new targets, CEO Jean Pierre Mustier says negative rates and Basel III reforms mean “8% is the new 10%” for European banks’ returns on equity

Jean Pierre Mustier is pinning his hopes on share buy-backs and dividend buy-outs in UniCredit’s latest three-year plan, as he tries to convince investors to look beyond its falling return on equity.

The chief executive’s new plan, unveiled at the bank's capital markets day in London on December 3, comes as lower-for-longer negative European Central Bank rates – and the looming effect of new Basel III reforms in Europe – are forcing more eurozone banks to abandon hopes of earning a double-digit return on equity, something previously regarded as an industry minimum.

Jean-Pierre Mustier_2018_160x186

Jean Pierre Mustier, UniCredit

UniCredit, which can style itself a pan-European institution thanks to top-tier positions in Italy and Germany, now targets an underlying return on tangible equity of 8% by 2023. That compares to a target of more than 9% in its previous plan, made at the height of Italy’s non-performing loans crisis.

German lender Commerzbank also had to cut its three-year target to 4% this autumn, compared to 6% in its previous plan.

The new targets come as a less benign interest rate outlook for lenders across the continent puts about a quarter of European bank profits at risk, according to UBS.

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