Hurrah, some of the world’s largest banks have been rounded up to underwrite a €13bn (£11bn) rights issue at the giant Italian lender UniCredit. This is unequivocally good short-term news for Italy and the European banking system since the alternative would have been an immediate crisis for both.
Yet, eight years after the global banking crash, Italian and European banking regulators should hang their heads in shame that a bank the size of UniCredit should require such a large infusion of fresh capital. This is UniCredit’s third fundraising since 2008, a damning statistic. Do it once and do it properly, says the old rule of refinancing. In Italy’s case, the authorities pretended that time would wash away a slug of the bad loans in the system. Instead, in a stagnant Italian economy, the rot spread.
A sum of €13bn does, at least, give UniCredit the chance to give its pipes a proper rinse. Provisions will be increased by €8.1bn and a €17.7bn portfolio of bad loans will be sold off. In parallel, around 14,000 jobs will be cut over three years in an attempt to make cost ratios vaguely competitive.
At the end of the process, sometime in 2019, UniCredit will emerge with a return on equity of 9%, says chief executive Jean-Pierre Mustier. That would be a big improvement on the current position but may imply that UniCredit won’t achieve returns greater than its cost of capital. That’s just modern reality, Mustier argues, correctly: the days of chasing 20% returns are over for all banks. The more important measure is capital strength and, if UniCredit can get to a core ratio of 12.5% in 2019, it will be back in land of the respectable.
The self-help plan seems bold enough to ensure that the fundraising will succeed in January without the need to call on the underwriters; there are only a few weeks to wait, and Italy won’t be holding any more referendums. But UniCredit’s drawn-out saga does not inspire bullish thoughts about Italy’s ability to tackle its many economic and financial woes within the eurozone.
A radical plan for the bank has emerged only after years of delay, and stragglers such as Monte dei Paschi di Siena still await their fate. Meanwhile, the restructurings – as opposed to the immediate fundraisings – will require work over many years to succeed. The backdrop is high unemployment, low growth and the rise of eurosceptic parties. Crisis over? Hardly.
Unanswered questions at M&S
One of Robert Swannell’s contributions to Marks & Spencer is secure for all time. In 2004, as a supremely well-connected City investment banker, he led the advisory team that helped save M&S from Sir Philip Green’s attempted takeover. The nation gives thanks.
The Green episode, however, saddled all subsequent M&S chief executives and chairmen with a benchmark for success. Green’s offer, which never technically materialised (a bit like his promise to “sort” the BHS pensions deficit), was pitched at 400p-a-share, a price that is constantly watched inside and outside the company.
When Swannell became chairman of M&S in January 2011, the shares stood at 370p. On Tuesday, as he announced his departure next year, the price closed at 349p. Shareholders have had decent dividends on the way, of course, but in share price terms, M&S is roughly where it started. The buzz of excitement from the food side has been drowned out by the disappointments in clothing.
A chairman runs the board and not the company, so let’s not overstate Swannell’s role. But there is an unresolved mystery from his years. Under Marc Bolland, chief executive for most of Swannell’s time, M&S talked up its international prospects. Then Steve Rowe, who took over in April, said he would close 53 loss-making overseas stores in 10 countries, presenting the decision as an act of financial sanity given the size of the losses overseas.
Rowe’s logic seemed impeccable, so why didn’t the board curb Bolland’s enthusiasm? Swannell is staying until his successor is appointed, so there is still time for him to explain.
Why keep the Nissan deal hush-hush?
Encouraging news: the UK did not incur an “identifiable contingent liability” when the government gave assurances to Nissan that the carmaker’s new investments in this country would not suffer after Brexit. So says Sir Amyas Morse, the head of the National Audit Office, in a letter to Andrew Tyrie, head of the Treasury select committee.
So why can’t we all see what Nissan was told in writing by Greg Clark, the business secretary, in October? Tyrie is right to keep pressing for publication. The government’s desire for secrecy looks increasingly ridiculous – and impossible to sustain.
