By Valentina Za and Pamela Barbaglia
MILAN/LONDON (Reuters) - Italy's biggest bank UniCredit promised shareholders a 2 billion euro ($2.2 billion) share buyback in an effort to revive its moribund stock, but warned that its profit would barely grow despite plans to shed 9% of its staff.
Like other European banks, UniCredit is grappling with negative interest rates which make lending unprofitable, while Italy's stagnating economy and unstable politics are compounding its problems, outweighing years of successful restructuring.
UniCredit, which has cut a fifth of its staff and shut a quarter of its branches in mature markets in recent years, said it would make a further 8,000 job cuts and close 500 branches.
The bank is now betting on higher shareholder returns to boost a stock trading at roughly half the value of its tangible assets, despite the sale of 50 billion euros in impaired loans since the 2016 arrival of CEO Jean Pierre Mustier.
Combining dividend payments and the share buyback UniCredit plans to return 8 billion euros to shareholders under the plan, reaching a 50% capital distribution ratio in 2023.
Mustier has said low valuations for banking shares make buybacks a better option than mergers, which would be necessary for European banks to grow in size.
Mustier ruled out a deal for UniCredit and said on Tuesday it would only consider small, bolt-on acquisitions.
"No M&A and that's it," he told a media call.
To fund the balance sheet clean-up, the French investment banker has sold more than 12 billion euros in assets while also raising 13 billion euros in a new share issue.
UniCredit said last week it would wind down a joint-venture in Turkey, following on from its disposal under Mustier of Polish unit Pekao and other overseas operations.
Nearly half of UniCredit's revenue comes from Italy, but it still owns franchises in Germany, Austria and central and eastern Europe.
It said on Tuesday it plans to set up a sub-holding company based in Italy to house these operations.
This should allow it to cut the amount of costly debt it needs to issue to offset potential losses under rules introduced after the global financial crisis.
Mustier said no breakdown could be given on the job cuts because talks were just beginning with trade unions, who expect them to hit UniCredit's domestic network in particular given its relatively larger size.
But costs will barely budge under the plan.
Weighed down by 4.5 billion euros in non-operating charges in the next four years, mostly linked to reducing its Turkish exposure, UniCredit forecast underlying net profit of 5 billion euros in 2023 compared with 4.7 billion expected in 2019.
European banks are struggling in a fragmented market, grappling with outdated business models, the need for large IT investments and growing competition from non-banking players.
($1 = 0.9073 euros)
(Reporting by Valentina Za; Editing by Silvia Aloisi, Christopher Cushing and Alexander Smith)