The banking sector is under severe pressure from all sides, and coming up with the necessary solutions proves to be challenging. To make matters worse for Italy’s largest bank, they are forced to let go 14,000 of their employees. Additionally, they will need to raise 13 billion Euros to get rid of their bad debt–not a happy Christmas for a lot of employees, that much is certain.
UniCredit Cuts Workforce By 14,000
Italian banks are under a lot of pressure, mostly due to their bad debts which make it virtually impossible for them to stay afloat. The only options left on the table are raising new capital (even though no one should trust banks right now) and cutting down workforce. Italy’s UniCredit is doing both, although it remains to be seen if that will be enough to keep things rolling.
To put this into perspective, the job cuts will go into effect between now and the end of 2019. That still means that over 4,000 people will be let go every year, which is a staggering number. At the same time, these job cuts will reduce costs by 1.1 billion Euros. Such a measure is absolutely necessary for UniCredit at this stage.
But that is not all, as the bank also announced that they will move 17.1 billion Euros worth of bad loans off the balance sheet. These loans will be packaged and sold to investors–a bold move, but one that shows how easy it is to manipulate the banking system as a whole. Bad debt does not go away because it comes with new packaging.
Italy’s banking sector is haunted by bad debts, and it is worrisome to see the country’s largest bank be one of the first to announce such severe measures. This does not bode well for many smaller banks in the country, all of whom are dealing with similar issues. With US$380bn worth of non-performing loans accounted for so far, things can go from bad to worse pretty quickly.
Raising the new capital will be quite a challenge, even for a bank with the allure of UniCredit. Trust in the banking sector is at an all-time low, and that is only understandable. Consumers and investors are tired of banks failing to produce adequate results. Moreover, fewer people are trusting these institutions to keep their money safe than ever before.
Banks failing to raise the necessary capital will have very few options left to them. The Italian state will be forced to bail out these institutions, but it is doubtful that they can put together enough money to save multiple banks from going under. The banking sector is undergoing drastic changes, which was to be expected after years of mismanagement and bad decisions.
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