Handelsblatt Exclusive

The Italian Patient: UniCredit's New Rescue Plan

  • Why it matters

    Why it matters

    The future of UniCredit, Italy’s largest bank, is inextricably tied to the future of the Italian economy, where the bank generates most of its sales and profit.

  • Facts

    Facts

    • Jean Pierre Mustier took over as CEO of UniCredit, Italy’s largest bank, in July.
    • UniCredit owns Munich-based HypoVereinsbank, one of Germany’s largest banks.
    • Mr. Mustier, in this exclusive Handelsblatt interview, quelched rumors that UniCredit would sell HypoVereinsbank, which he called a core part of the Italian institution’s future.
  • Audio

    Audio

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UniCredit SpA Chief Executive Officer Jean Pierre Mustier Announces Plans For $13.8 Billion Stock Sale
Jean Pierre Mustier, the new CEO of Italy's biggest bank, UniCredit, is bullish about the troubled institution's future. Source: Bloomberg

Mr Mustier, you used to be a paratrooper. Do you like adventure?

Being a paratrooper is less about adventure than discipline. You try to minimize risk and plan ahead.

Some people see your new role as an adventure. What was it about what is probably the toughest job in the European banking industry that appealed to you?

UniCredit is a very good bank with big competitive advantages. My job is therefore by no means the toughest in the industry. When I was asked in June, I quickly accepted as I have strong emotional ties to this bank.

You told us a week ago that the ”no” vote in the Italian constitutional referendum would have no influence on your business model. But your business in Italy, which accounts for 48 percent of UniCredit’s revenues, cannot be immune to political developments.

There is a tendency these days to pay too much attention to short-term developments. Italy has always been subject to a certain political dynamism. Since 1946 the country has had 63 different governments. But Italy is still the third-largest economy in the eurozone and the seventh-largest industrial nation in the world. And Italy is a rich country. The wealth of the average Italian is eight times as much as that of an average German or American.

But Italy also has a debt crisis, chaotic governments, frequent changes of power, and a north-south split – and you say that the positive outweighs the negative?

I have a positive view of Italy, and there is a structural reason for that: The country has good entrepreneurs that do not rely on the government but have ensured their success with adaptability and creativity over generations. We should focus much more on these entrepreneurs and the good companies in Italy.

That doesn’t apply to the banking sector, however.

The banks in Italy were very hard-hit by the recession. That’s partly due to the fact that the government – unlike those in Spain and Portugal – did not lend the banks a helping hand. But I am extremely confident that there will be a constructive solution for Italy’s banks.

What do you make of the Italian government’s plan to spend €20 billion on bailing out the banks?

I am fully confident a constructive solution will be found, which will be in the best interest of the whole banking sector. I do not want to comment further.

But there is still a big unsolved problem: Italy’s debt crisis.

You have to make certain distinctions there. If you look not only at the officially reported debt, but also at the future costs of the social insurance systems and pension claims of the citizens, then Italy is actually in a better position than Germany and France.

In view of the high sovereign debt, some experts argue that Italy would be better off leaving the eurozone. Do you agree?

These comments are naive and not especially helpful. Italy benefits enormously from being part of the eurozone and the E.U. Just look at the U.K. and the potential disadvantages it faces through Brexit. It would be unwise for Italy to pursue a similar path. It’s not really my job to comment on politics. But there’s something I would like to say: In the debate on the pros and cons of E.U. membership, particularly the younger generation forgets one thing: peace. When we talk about the E.U., then we can’t base our discussion entirely on the economic benefits. We also have to consider what the E.U. has meant for peace in Europe.

 

“I have a positive view of Italy, and there is a structural reason for that: The country has good entrepreneurs that do not rely on the government but have ensured their success with adaptability and creativity over generations. ”

Jean Pierre Mustier, CEO, UniCredit Bank

Let us talk about your strategy. It includes a capital increase of €13 billion. The market capitalization of UniCredit is just €17 billion. Why should investors participate in the increase when their shares are being diluted to that extent?

We have developed a plan – and the €13 billion fully underwritten in volume rights issue is a key component of it. Our plan is based on conservative assumptions and it is pragmatic, with tangible and achievable targets. It depends mostly on cost and risk management levers which are firmly under our control. The reaction of the market after the presentation of the plan was encouraging.

This will be the third capital increase since 2008. Will there be a fourth one during your term of office?

No. Of course not. We are performing a very thorough clean-up of our legacy issues. And with the capital increase we are creating a buffer of 200 basis points. That gives us enough leeway in case the regulators do end up imposing stricter requirements. Moreover, we intend to distribute a 20 to 50 percent cash dividend starting in 2018. That range gives us additional flexibility for any unforeseen developments.

The investors were not particularly patient with your predecessor. How much time will you have to convince your shareholders that you can carry out a restructuring of the bank with a lasting impact?
You only have to look at what we’ve done in the past five months: No one thought it could be done within that timeframe. We have sold our stake in Pekao in Poland, a part of Fineco, and our entire holding in asset management firm Pioneer as well the majority of a €17.7 billion portfolio of distressed loans. This shows that I came to deliver results and that I am absolutely committed to the success of the plan and to UniCredit.

In addition, I am waiving part of my compensation as I believe we can’t eliminate 14,000 jobs without the CEO acting as a role model and exercising restraint. That is unparalleled in Europe.

Should others be doing the same?

I don’t want to talk about other people. But I’ll say this much: as an officer in the paratroopers, I always jumped first to lead by example.

Before you left UniCredit two years ago, you already had plans for a relatively radical restructuring of the bank.

Yes, as the head of the corporate and investment banking, I restructured the business activities in that segment. We shut down the business with complex products with the idea of offering our customers only simple solutions from then on. With that move, we were ahead of the curve.
So that strategy was similar to the current one for the entire bank?

My vision is that banks should be simple. And we have internalized that at UniCredit. We are a pan-European commercial bank with a simple business model and a unique western, central and eastern European network.

What does “simple” mean?

That we are a commercial bank with an efficient plugged in client-focused investment bank that serves corporate clients especially on transaction banking and debt finance. That is the evolution of banks in the 21st century: moving towards simplicity, and optimizing and streamlining their regional presence. The Scandinavian banks have been doing it for 20 years.

But it took them two decades to do it, didn’t it?

Formally, our plan is indeed a three-year plan. But in fact it’s an evolution of the bank over a 20-year period. Banks meet a fundamental need. That means that they’re regulated and provide society with services. To do this as effectively as possible, we need a simple and easily replicable business model.
That means the highly profitable, high-risk business model of investment banks in the past is dead?

Yes, but it’s been dead for years. And it’s not going to come back. We are convinced that the reason investment banking needs to be there is to meet the business needs of corporate clients.

 

“We are a German bank in Germany (with HypoVereinsbank). That is a big advantage when doing business with the Mittelstand. ”

Jean Pierre Mustier, CEO, UniCredit Bank, Italy's largest

And the big profits?

They’re history. First, because, thanks to pressure from the regulatory authorities, banks are no longer as highly leveraged as they used to be, and second, clients no longer want those highly complex products. In that world, the 9 percent return we’re aiming for is good.

Did you leave UniCredit two years ago because you wanted a more radical transformation even in those days, but a majority of the old executive team were opposed?

If the strategy that you think would better benefit the company is not adopted, it is better to step down. That’s why I left, and it’s also why I have now returned.

Do you have to be more radical than would have been necessary two years ago because the situation in the bank has worsened in the meantime?

No, because the pressure from the regulators has started to ease up. We are getting signals from the European Central Bank for a regulatory break. The ECB wants strong pan-European banks. And so far there are actually only two of them: UniCredit and BNP Paribas – BNP with its focus on France, Italy and the Benelux countries, and us, with activities centered in Italy, Germany and Austria.

What is your competitive advantage over BNP Paribas?

One of them is that we are a German bank in Germany. That is a big advantage when doing business with the Mittelstand. I recently talked with a German entrepreneur who said, we’ve been doing business with HypoVereinsbank for 50 years and plan to do so for another 50 years.

So a sale of HypoVereinsbank, as proposed by some people, is a non-starter in your eyes?

Yes, absolutely. We would not need less capital if we were to sell HypoVereinsbank or our eastern European business. We do not see HypoVereinsbank as a financial investment, but as a strategic asset. We love Germany because it’s of enormous strategic importance to us in two respects. First, UniCredit is the bank for the Mittelstand in Europe. And Italy, Germany and Austria are the core markets for that business. Second, HypoVereinsbank is the main center for our investment banking business.

So you wouldn’t consider a sale even in the medium term?

Never. On the contrary, our plan is for further expansion of our presence and particularly of the business with our Mittelstand clients in Germany.

Would you consider floating HypoVereinsbank on the stock market in order to finance the expansion?

No, definitely not. We want to maintain 100 percent ownership of HypoVereinsbank. An IPO would not make sense. We want to be a bank with a simple structure.

How well do you get along with Theodor Weimer, the CEO of HypoVereinsbank?

Very well. I have restructured the management team and Theodor is part of the new top executive body. We’re a very strong team that works together very closely – including on the new strategy which we developed together as a team.

So you’re also in favor of Mr. Weimer extending his contract, which is due to expire at the end of 2017?

Yes, absolutely.

Have you talked to him about that?

Of course. We want the current management team to remain on board in its current form not only through to the end of the Transform 2019 plan period, but also beyond that time.

You’re French, but are now working for an Italian bank. That makes you an outsider in the world of Italian banks, which are headed mostly by Italians. Does that make your job harder?

UniCredit has Italian roots, but is a true pan-European bank. I speak English with my colleagues. And I certainly can’t complain about a lack of support. The board of directors has been very constructive – and the same is true of all my colleagues, our customers and the authorities.

But you are still taking Italian lessons …

…That’s the least I can do! So that I can say a few things in Italian. But I will never be able to discuss everything in Italian. The language is just too difficult — troppo difficile.

Thank you for the interview.

Katarina Slodczyk is Handelsblatt’s London financial correspondent and Daniel Schäfer is the head of Handelsblatt’s financial pages, based in Frankfurt. To reach the authors: slodczyk@handelsblatt.com and d.schaefer@handelsblatt.com

 

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