UCG Unicredit Spa

By Deborah Ball 

ROME -- The chief executive of UniCredit SpA, Italy's largest bank, has agreed to step down, clearing the way for the board to begin a search for his successor.

UniCredit said CEO Federico Ghizzoni will step down once a new chief executive is found, to ensure a smooth transition.

The company's board "unanimously thanked Federico Ghizzoni for the high quality of his work" under "extremely difficult market conditions," a statement from the bank said Tuesday. UniCredit didn't provide further details on the timing of the transition.

Speculation about the future of Mr. Ghizzoni, who became chief executive in 2010, has been mounting for months, as investors pummeled the bank's stock and major shareholders grew increasingly convinced that new leadership was needed to restore confidence

According to people familiar with the situation, the board is seeking an outsider who can spearhead a capital increase to replenish the bank's capital cushion. Some said UniCredit needs to raise as much as 9 billion euros ($10.1 billion) in fresh funds. Those funds could come from a rights issue, asset sales, or both, they said.

The bank's problems have been growing steadily in recent months. It has struggled with low interest rates, given its large concentration on traditional lending and its difficulty in bolstering fee-earning businesses. It also has about EUR80 billion in bad loans, more than any other bank in Europe.

Moreover, investors have grown increasingly concerned the bank's capital cushion is too thin. UniCredit, which is the only systemically important bank in Italy under new international guidelines, has reported its core capital dropped during the first quarter.

Mr. Ghizzoni came under particular criticism for the bank's decision to underwrite the EUR1.5 billion capital increase of Banca Popolare di Vicenza SpA. Earlier this spring, regulators grew concerned investor sentiment toward Italian banking stocks was so poor that the capital increase could fail, leaving UniCredit owning the troubled bank. As a result, the government stepped in and organized a fund supported by Italian financial institutions to take over the transaction.

UniCredit's shares have lost more than 40% since the start of the year. In recent days, it has risen on expectations of Mr. Ghizzoni's resignation. In Tuesday's trading in Milan, the stock rose 4.9%.

Write to Deborah Ball at deborah.ball@wsj.com

(END) Dow Jones Newswires

May 24, 2016 15:31 ET (19:31 GMT)

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