Italy's biggest bank by assets, UniCredit, unveiled Tuesday a major restructuring plan hinging on a 13-billion-euro (13.8-billion-dollar) recapitalization, the sale of 17.7 billion euros' worth of bad loans, and more aggressive job cuts.
Like many Italian banks, UniCredit has too many loans that are unlikely to be paid back. Pressure to deal with the problem has intensified with year, especially after a near-fail mark in European banking stress tests in July.
"We are taking decisive actions to deal with our [bad loans] legacy issues to improve and support recurring future profitability to become one of Europe’s most attractive banks," chief executive Jean-Pierre Mustier said in a statement.
Tuesday's three-year industrial plan set a target to raise UniCredit's CET 1 figure - a key index of financial strength that compares the bank's holdings to debt - from 10.8 per cent to more than 12.5 per cent by the end of 2019. The industry standard is about 13 per cent.
It also pledged to more than triple net income from 1.5 billion euros last year to 4.7 billion euros.
The bank's shares rallied on the news. By 11 am (1000 GMT) they were up by almost 7 per cent on the Milan stock exchange.
Its recapitalization is planned be achieved through a rights issue - the biggest-ever for Italy - to be approved by shareholders on January 13 and completed in the first quarter of 2017. It should add to proceeds from recent assets sales expected to raise nearly 8 billion euros.
Since July, UniCredit has announced the complete sale of Polish subsidiary Pekao and asset management company Pioneer, and of a 30-per-cent of Italian online bank Fineco. The deals should, on their own, raise the CET 1 ratio to 12.5 per cent, it said.
Extra money would help cover expected losses on bad loans. As well as preparing the cut-price sale of 17.7 billion euros of its dubious credit portfolio, UniCredit said it would make loan loss provisions of 8.1 billion euros in the fourth quarter of 2016.
The Italian lender - which has Germany's HypoVereinsbank among its assets - also said it would shed 14,000 jobs by 2019, 6,500 more than previously planned, including 1,500 in Germany and 3,900 in Italy. This should help achieve total cost reductions of 1.7 billion euros.
UniCredit is looking to shore itself up at a time when one of its Italian peers, Monte dei Paschi di Siena (MPS), is expected to require state help to recapitalize. Mustier said he did not expect MPS' troubles to affect his bank.
"We are very confident that the MPS situation will be solved before the end of the year and will not have any impact on our capital increase," Mustier said ahead of a presentation with investors in London, as quoted by the ANSA news agency.
Italian banks are saddled with about 360 billion euros of bad loans, about a third of the eurozone total. This is a legacy of both careless lending decisions and of a double-dip recession in 2009-2014, which pushed many firms and households into insolvency.