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UniCredit Chief Projects Sustained Investor Returns, Announces Another Share Buyback

UniCredit's CEO assures consistent shareholder returns as the banking giant gears up for a fresh share buyback program.

UniCredit Bank building
UniCredit Bank building

A Promise of Steady Investor Rewards

Andrea Orcel, CEO of UniCredit, promised on Tuesday that the banking behemoth could continue to reward its investors at the current rate for a minimum of two more years. This assertion came as the bank poised itself to roll out its second share buyback of the year.

Betting on Shareholder Remuneration for Share Price Boost

Orcel, after abandoning a rescue deal for the state-owned Monte dei Paschi, has placed his bets on shareholder remuneration as a means to elevate UniCredit's share price. Despite a whopping 136% surge in value since Orcel took the helm in April 2021, UniCredit’s stock still trades at a discount to book value, trailing behind its peer, Intesa Sanpaolo (OTC: ISNPY).

Optimizing Trading Multiples with Buyback Strategy

The strategy of buying back and canceling shares purchased at a discount could help UniCredit boost its trading multiples and bridge the existing gap. Orcel expressed his optimism at a Mediobanca (OTC: MDIBY) investor conference, saying, "At some point, somebody will discover that and then the attraction of the stock will increase."

Capital Generation and Return Strategy

On Tuesday, UniCredit announced that it would complete the 2.34 billion euro ($2.55 billion) share buyback initiated in April by the end of June, and immediately commence a second tranche worth 1 billion euros. Orcel affirmed, "I do think it's sustainable." The bank has been returning 60% of its annual capital generation to shareholders, primarily through buybacks and dividends. Since 2021, the distribution as a proportion of income has been decreasing due to rising profits.

Future Review and Potential Acquisitions

UniCredit has a strategy focused on capital-light businesses to maximize returns adjusted for the amount of capital used. Orcel hinted that the bank would maintain this strategy until 2024. "From 2025 onwards organic capital generation will align more with profitability," Orcel stated, adding that UniCredit would then reassess the viability of continuing its share buybacks. The positive impact on earnings, dividends, and tangible book per share from the buyback has set a benchmark for potential acquisitions. UniCredit might contemplate such acquisitions in markets like Romania to increase its presence, but only if these transactions surpass the benefits of the buyback.