By Valentina Za
MILAN (Reuters) - UniCredit <CRDI.MI> on Thursday opened the door to its first share buyback in more than a decade after solid third-quarter earnings and a boost to the bank's capital.
Italy's biggest bank is beginning to reap the benefits of years of restructuring under Chief Executive Jean Pierre Mustier, who took over in mid-2016 and embarked on a balance-sheet clean up, cutting costs and shedding non-core assets.
As part of this strategy, UniCredit on Wednesday sold its 8.4% stake in Mediobanca <MDBI.MI>, which had made it the biggest shareholder in the Milanese merchant bank.
Asked at a news conference if a sale of a stake in Turkish bank Yapi Kredi <YKBNK.IS> were possible, Mustier said UniCredit would constantly review how it allocates its capital among "countries, sectors and clients" under a new four-year plan due in December.
UniCredit's shares rose as much as 7% to their highest level since April following the bank's 26% yearly rise in third-quarter net profit adjusted for one-off items, and confirmation of its full-year targets.
Despite this year's rally, UniCredit trades at roughly half the value of its tangible assets. This reflects the challenges facing European banks, such as a fragmented market, outdated business models, the need for large technology investments and tough competition from non-banking players.
"Europe needs bigger banks but I cannot see any M&A transactions at this stage," Mustier told analysts.
Sources have said the French investment banker had studied a possible bid for Germany's Commerzbank <CBKG.DE> but was forced to shelve it.
He said any deal would require banks to raise additional capital but this was impossible given current market prices.
"Today what works very, very well is to buy back shares at discount to tangible book ... we don't want to issue shares we want to buy back shares," he said.
Mustier said contacts with the European Central Bank showed the regulator was willing to authorise share buybacks if lenders had enough capital.
Core capital rose to 12.6% of assets in July-September helped by the sale of UniCredit's remaining stake in online bank Fineco <FBK.MI>.
DISTANCE FROM MEDIOBANCA FEUD
The Mediobanca sale distances UniCredit from an investor feud at the storied investment bank, where billionaire Leonardo Del Vecchio recently built a stake and challenged the top management's strategy.
Del Vecchio wants to increase his stake further after securing just under 10% of Mediobanca, sources told Reuters on Thursday.
In the third quarter, strong trading gains, higher fees and falling loan losses offset a shrinking interest income to drive UniCredit's net profit to 1.1 billion euros (£947 million).
Analysts had looked on average for a profit of 1.01 billion euros on revenue of 4.57 billion euros, based on a consensus compiled by the bank.
After shedding 4 billion euros in impaired home mortgages, UniCredit said it had lowered the share of problem loans in its total lending to 5.7%, the best level among leading Italian banks.
As it works to reduce its domestic exposure, UniCredit also said it had cut its holdings of Italian government bonds by 3.6 billion euros in the quarter.
(Reporting by Valentina Za, editing by Silvia Aloisi/Emelia Sithole-Matarise/Jane Merriman)