March 17, 2010 / 6:50 AM / 8 years ago

UPDATE 5-UniCredit resumes cash payout as CEO defends revamp

* FY net 1.70 bln euros vs forecast 1.57 bln

* CEO dismisses resignations reports

* Dividend 0.03 euro/share vs forecast 0.02 euros

* Sells Generali stake as requested by Italian antitrust

* Shares up 5.9 pct, hit 7-wk high

(Adds CEO comments, updates shares)

By Ian Simpson and Gianluca Semeraro

MILAN/LONDON, March 17 (Reuters) - UniCredit SpA (CRDI.MI), Italy’s No. 1 bank, returned to a cash dividend on Wednesday as it battles to win round politically-connected shareholders who have been fighting a revamp plan by the lender’s boss.

Shares in the euro zone’s third-largest lender by market value jumped to a seven-week high in early trade in response to the higher than expected payout on yearly earnings, which also topped average analyst expectations.

The results came two days after reports, dismissed on Wednesday by Chief Executive Alessandro Profumo, that he had threatened to resign in the face of resistance from cash-hungry shareholder foundations over his plan to streamline domestic operations. [ID:nLDE62F12U]

“I don’t know why there is this discussion,” Profumo told journalists in London when asked about the issue.

UniCredit paid its dividend in shares last year but is now proposing 0.03 a share in cash, above forecasts, for a total of nearly 600 million euros ($819.8 million). Bank of Italy Governor Mario Draghi had urged banks last week to direct profits to strengthening capital instead of handing out cash to shareholders. [ID:nLDE62C072] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For Breakingviews comment please double click on: [ID:nLDE62G0PR]

For a graphic on UniCredit’s shareholder structure:

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Profumo told an analyst conference UniCredit’s Bank Austria unit would need a further 1 billion euros of capital to meet tougher new rules for the money banks put aside against risk.

Profumo, architect of UniCredit’s rise from domestic lender to major European player thanks to the acquisition of Germany’s HVB in 2005, said he was confident of reaching agreement with shareholders over a reorganisation that analysts say could save up to 800 million euros a year.

At a press conference in London on Wednesday, he said relationships with shareholders were good but more time was needed to finesse the plan: “We want to go into a deeper analysis on how the new organisation should work.”

LOCAL INFLUENCE AT STAKE

The plan would eliminate boards at UniCredit units, limiting the local influence of politically-connected shareholder foundations that overall hold about 12 percent of the bank.

The foundations, which had borne much of the costs of 10 billion euros in capital-strengthening steps last year, would also like to install a general manager, potentially weakening Profumo, who has played the resignation card in other confrontations at the banks.

Profumo said this issue has not been discussed so far.

UniCredit made a net profit of 1.70 billion euros in the year, down 58 percent from the year before but above an average forecast of 1.57 billion according to Thomson Reuters I/B/E/S.

    “The beat is mainly coming from better revenues, ongoing strong cost control and lower provisions,” Citi analysts said.

    Its shares were up 5.9 percent at 1543 GMT, making it one of the best-performing stocks in the European banks’ index .SX7P, which was up 1.4 percent.

    Matrix Corporate Capital Andrew Lim note however that the numbers were not as high-quality as at first look as the improvement on net interest income was based on one-off gains.

    UniCredit, the Italian lender most exposed to the credit crunch through its role as No.1 bank in eastern Europe, showed a slight quarterly drop in bad debt provisions against expectations of some year-end kitchen-sinking.

    PEAK IN PROVISIONS

    But charges remained high at around three times pre-Lehman levels, potentially hampering the bank’s full recovery while interest rates remain stubbornly low.

    Bank Austria said bad debt provisions have probably peaked in emerging Europe. [ID:nWEB5987] Provisions picked up in Turkey, Russia and the Balkans, especially Croatia, after dropping in third quarter. In debt-ridden Kazakhstan charges for impaired loans fell but still accounted for 7 percent of group bad debt charges.

    Profumo told analysts he saw signs of economic improvement in Poland, Russia, Turkey and in the Czeck Republic but any further expansion in the region would be selective: “Winning market share is easy, making money is different,” he said.

    European banks have shown mixed 2009 results as they emerge from the financial crisis. France’s Credit Agricole (CAGR.PA) swung to a net profit but was hit by losses in Greece, while Deutsche Postbank DPBGn.DE saw an unexpected quarterly loss as it doubled loan loss provisions. [ID:nLDE61H0F5] [ID:nLDE61O10X]

    UniCredit also said it sold a 2.84 percent stake in Italy’s largest insurer Generali SpA (GASI.MI), booking a net loss of 67 million euros. The bank is a key player in discussions to name a new chairman at Generali in coming weeks. [ID:nLDE62804Z]

    Italy’s antitrust authority ordered it to sell the stake after the purchase of Rome-based bank Capitalia in 2005. Traders said shedding the stake would help it strengthen capital ratios. ($1=.7318 Euro) (Additional reporting by Steven Slater in London, Nigel Tutt and Lisa Jucca in Milan and Boris Groendahl in Vienna; Writing by Ian Simpson and Lisa Jucca; Editing by David Holmes and Simon Jessop)

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