By Paola Arosio and Gianluca Semeraro
MILAN (Reuters) - UniCredit (MI:CRDI) Chief Executive Federico Ghizzoni is to step down, the Italian bank said on Tuesday, in a move expected to lead to a broader shake-up of the group and possibly a multi-billion euro capital increase.
Italy's biggest bank by assets said it had asked Chairman Giuseppe Vita to start the succession process and that Ghizzoni would stay on until a replacement was found.
"The UniCredit board of directors and Federico Ghizzoni acknowledged that the conditions are now such that it is time for a change at the top of the group," the bank said in a statement issued after an extraordinary board meeting.
Ghizzoni, who has led UniCredit since 2010, had been expected to go due to growing shareholder discontent over the bank's falling share price, stretched capital and low profits.
A successor should be appointed at a board meeting on June 9, a source close to the matter told Reuters.
Candidates tipped for the job include Frenchman Jean-Pierre Mustier, a former Societe Generale (PA:SOGN) and UniCredit executive, UBS's (S:UBSG) investment banking boss, Andrea Orcel, and Merrill Lynch's (N:BAC) Italy chief, Marco Morelli.
The choice is likely to hinge on whether the board considers the possibility of merging with another bank. Orcel is seen as a candidate that could lead UniCredit into a tie-up.
Alternatives to a deal include cutting UniCredit's sprawling international network and raising funds via a capital increase, which some sources put at 8 billion euros (£6 billion).
Nationality could be an issue, with some sources close to the matter saying an Italian would be preferred, especially since another French national, Philippe Donnet, took the helm of insurer Generali (MI:GASI) recently.
"I would like an Anglo Saxon who is not going to get muddied in the local politics," said Xavier Van Hove, fund manager at THS Partners, which owns a small stake in UniCredit.
"If they did do a capital raise, we would obviously participate and that would add to our position, reluctantly ... but we want to see who they put in charge."
Shareholders representing 15 percent of the bank took a big step towards ousting Ghizzoni last week by asking Vita to improve governance, including possibly by replacing the CEO.
Ghizzoni has come under pressure because UniCredit, Italy's only globally systemically important financial institution, failed to put to rest worries it might need a capital increase soon.
Its core capital fell to 10.5 percent at end-March, just above a 10 percent minimum level set by the European Central Bank for 2016, which will gradually rise to 11 percent in 2019.
The bank's shares have plunged 40 percent this year in a rout of Italian banking stocks. In comparison, shares of domestic rival Intesa Sanpaolo (MI:ISP), which has a core capital ratio of 13.1 percent and is twice as profitable as UniCredit, have dropped 25 percent over the same period.
Adding to investors' concerns was UniCredit's role as underwriter for a 1.5 billion euro cash call at troubled regional bank Banca Popolare di Vicenza. A group of Italian financial institutions had to step in to backstop the capital increase.
Bankers say the new CEO will need to revamp, and probably prune, the bank's international operations, now spanning 17 countries after a buying spree in Germany and central Europe.
In the past, such a broad exposure helped to offset weakness in Italy's economy, but it has also exposed the bank to the volatility of countries like Russia, Ukraine and Turkey.
The Milanese bank may cut stakes in online broker Fineco (MI:FBK), Poland's Bank Pekao (WA:PEO) and Turkey's Yapi Kredi (IS:YKBNK), a source said last week.