ECB approves UniCredit’s share buyback plan ahead of AGM

The European Central Bank has approved UniCredit’s plan to significantly increase the amount it is returning to shareholders despite the banking sector’s recent turmoil.

Italy’s second biggest bank said on Tuesday that the ECB had signed off on its €3.34bn share buyback programme for 2022. Together with a proposed dividend, UniCredit will distribute €5.25bn to investors, a 40 per cent increase on 2021’s levels.

The approval is a significant boost for the bank just days ahead of its annual shareholder meeting, when investors will need to approve the planned dividend and the timing of the buyback programme.

The Financial Times reported in November that UniCredit and the European regulator clashed over the aggressive capital distribution strategy.

Ambitions to hand €16bn to shareholders through a mix of dividends and share buybacks have been a central pillar of chief executive Andrea Orcel’s strategy since he took the top job from Jean Pierre Mustier in 2021.

UniCredit’s share price has almost doubled since Orcel took over, with profits climbing to €6.5bn last year. The performance has led several of the bank’s top shareholders to back a pay rise for Orcel, whose remuneration of €7.5mn already makes him one of the best-paid bankers in Europe.

German insurer Allianz, London-based fund Parvus and Norway’s oil fund are all supporting the board’s proposed 30 per cent pay rise for Orcel, defying calls by the world’s largest proxy advisers to vote against it.

Under the plan, Orcel’s fixed salary would increase from €2.5mn to €3.25mn. If targets for this year, including on profits and return on equity, are exceeded, his total pay package will hit €9.75mn, with the bonus entirely paid in deferred shares.

Earlier this month proxy advisers Glass Lewis and ISS urged shareholders to reject the pay proposal, saying it would lead to an excessive increase in overall remuneration of the bank’s top management.

Edoardo Mercadante, the founder of Parvus, Unicredit’s second-largest shareholder, told the Financial Times that “the structure [of the proposed pay package] is fair as it is strictly linked to new revised and upgraded targets . . . I don’t understand the sensationalism around it.”

At the shareholder meeting on Friday, investors will only be required to vote on the variable element of the pay package. The board has told shareholders it intends to increase Orcel’s fixed pay by 30 per cent regardless of how they vote on the variable part.

“We need to do different things than the rest of the banks in Europe,” said Cole Smead, of Arizona-based Smead Capital, a shareholder in UniCredit. “We can’t be stingy to successful executives. Let’s leave that to the banks that don’t get it.”