By Valentina Za, Pamela Barbaglia and Gianluca Semeraro
MILAN/LONDON (Reuters) - Italy's top bank UniCredit raised its 2019 dividend goal and pledged to shed more soured debts as it pressed on with a turnaround under CEO Jean Pierre Mustier, fending off adverse regulatory changes.
UniCredit hired the former Societe Generale (PA:SOGN) executive, 56, in the middle of 2016 to put to rest long-standing concerns over its weak balance sheet. The French banker sold assets and shut branches, pulling off a record 13 billion euro (£11.4 billion) share sale this year to fund bad loan disposals and job cuts.
UniCredit's shares have gained around 80 percent since his appointment.
"We're making good progress on our plan, but this is not a sprint, we're one third (of the way) on our marathon," Mustier told investors in London on Tuesday.
He dismissed speculation that a merger could be the endpoint of the bank's restructuring efforts, saying growth plans to 2019 and beyond were stand-alone.
In updating its three-year plan, UniCredit stuck to a 2019 net profit goal of 4.7 billion euros ($5.5 billion) and a core capital ratio above 12.5 percent despite regulatory changes estimated to shave 1.5 percentage points off the ratio over the period.
It now plans to pay out to shareholders 30 percent of its 2019 profit, up from 20 percent previously.
It will raise its payout further to up to 50 percent after 2019, provided its core capital ratio stays above 12.5 percent once a number of further regulatory headwinds, including tougher new European Central Bank's rules on loans turning sour, are accounted for.
"The approach confirms UniCredit's strong relative capital position versus peers in our view (and offers continued absolute upside on dividend as regulation finalises," Jefferies said in a note.
UniCredit raised bad loan reduction targets set a year ago, signalling heightened efforts by Italian banks to deal with soured debts left behind by a harsh recession as the ECB turns up pressure.
The bank completed on Tuesday the last leg of a key 17.7 billion euro bad loan sale, reducing its holding in the portfolio to below 20 from 49.9 percent, in a move that will add 10 basis points to its core capital ratio.
UniCredit said it would cut an additional 4 billion euros in gross soured debts by the end of 2019 so that they would account for 7.8 percent of total loans by then, down from a previous 8.4 percent goal set in December 2016 when it announced its plan.
Mustier said the reduction would be achieved through sales, recoveries and write-offs. UniCredit also plans to bring to zero by 2025 a non-core loan portfolio which at the end of September included 29 billion euros in gross impaired debts.
Shares in UniCredit were up 1.4 percent by 1154 GMT, outperforming the sector. By contrast, smaller rival UBI Banca dropped 3 percent after it warned in a bond document the ECB had asked it for more ambitious bad loan reduction targets.
