MILAN (Reuters) - UniCredit (LON:0RLS) said on Tuesday it had received supervisory approval to buy back its own shares for up to 3.34 billion euros ($3.6 billion), giving a boost to the stock price at a time of deep uncertainty for the banking sector.
Shares in UniCredit extended gains on the announcement to rise 4% by 1421 GMT.
UniCredit said the approval reflected information it provided to the European Central Bank to highlight its strong capital and liquidity position, as well as its ability to generate new capital.
"These ensure that the business can weather stress scenarios from a position of strength," it said.
The banking sector is being rocked by the failure of some regional lenders in the United States and Credit Suisse (SIX:CSGN)'s rescue merger with rival UBS, which have focused investors' attention on the threat posed to the economy by the rapid rise in interest rates.
UniCredit has spent years restructuring and beefing up its capital reserves, accumulating ample excess capital.
CEO Andrea Orcel has bet on a generous distribution policy to lift the price of the shares, which have long been trading at a discount versus peers.
The former UBS investment banking chief, Orcel has also focused UniCredit on businesses that maximise profits in relation to the capital allocated, pledging to distribute all the newly-generated capital.
Taking into account both cash dividends and the buyback, UniCredit will return to shareholders 5.25 billion euros out of its 2022 earnings, or all of its underlying net profit.
The 40% increase in shareholder remuneration versus 2021 is one of the arguments brought by the board when it proposed a new pay structure for Orcel, which goes to a shareholder vote on Friday. The new scheme grants a 30% pay rise if UniCredit beats its 2023 goals.
UniCredit said it would execute the buyback in two tranches, with the first one worth 2.34 billion euros due to start as soon as possible after being approved at Friday's meeting. ($1 = 0.9242 euros)