By Valentina Za, Pamela Barbaglia and Gianluca Semeraro
MILAN/LONDON (Reuters) - Italy's biggest bank UniCredit (MI:CRDI) raised its 2019 dividend goal and pledged to shed more soured debts despite regulatory pressures, as part of a turnaround under CEO Jean Pierre Mustier.
UniCredit hired the former Societe Generale (PA:SOGN) executive in 2016 to tackle long-standing concerns over a weak balance sheet. The French banker sold assets and shut branches, pulling off a record 13 billion euro ($15 billion) share sale this year to fund bad loan disposals and job cuts.
UniCredit's shares have gained around 80 percent since his appointment.
"We're making good progress on our plan, but this is not a sprint, we're one third (of the way) on our marathon," Mustier told investors in London on Tuesday.
He dismissed speculation that a merger could be the ultimate goal of the bank's restructuring efforts, saying growth plans to 2019 and beyond were stand-alone.
In updating its three-year plan, UniCredit stuck to a 2019 net profit goal of 4.7 billion euros ($5.5 billion) and a core capital ratio above 12.5 percent despite regulatory changes estimated to shave 1.5 percentage points off the ratio over the period. The bank said it was also bringing forward a 0.9 percentage point capital hit stemming from future rule changes.
Despite this, it now plans to pay out to shareholders 30 percent of its 2019 profit, up from 20 percent previously.
The bank will then increase its payout further to up to 50 percent if its core capital ratio remains above 12.5 percent once new rules, including tougher new European Central Bank's requirements for bad loans, are accounted for.
"The approach confirms UniCredit's strong relative capital position versus peers in our view and offers continued absolute upside on dividend as regulation finalises," Jefferies said in a note.
Financial regulators, who want banks to hold more capital against possible losses in the wake of the global financial crisis, reached a deal last week on a new set of rules.
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UniCredit raised bad loan reduction targets set a year ago, signaling heightened efforts by Italian banks to deal with soured debts left behind by a harsh recession.
The bank completed on Tuesday the last leg of a major 17.7 billion euro bad loan sale, reducing its holding in the portfolio to below 20 from 49.9 percent, in a move that will add 10 basis points to its core capital ratio.
UniCredit said it would cut an additional 4 billion euros in gross soured debts by the end of 2019 so that they would account for 7.8 percent of total loans by then, down from an initial 8.4 percent goal.
Mustier said the reduction would be achieved through sales, recoveries and write-offs. UniCredit also plans to bring to zero by 2025 a non-core loan portfolio which at the end of September included 29 billion euros in gross impaired debts.
Shares in UniCredit were up 1.4 percent by 1154 GMT, outperforming the sector (FTIT8300). By contrast, smaller rival UBI Banca (MI:UBI) dropped 3 percent after it warned in a bond document the ECB had asked it for "more ambitious" bad loan reduction targets.