Unicredit Overhaul

Time For Tough Decisions

Ghizzoni-BertBostelmannHB
Federico Ghizzoni has some tough choices to make.
  • Why it matters

    Why it matters

    While the Italian bank is not expected to intensify its restructuring of HVB, a potentially radical makeover of Bank Austria signals that Unicredit’s strategy of owning largely independent subsidiaries may have reached its limits.

  • Facts

    Facts

    • Next Wednesday, Unicredit’s chief executive will present investors with a restructuring plan, which could include 12,000 job cuts – 2,000 more than previously announced.
    • According to sources, the plan will not intensify restructuring measures already in place at HVB, but it could carve up Bank Austria.
    • A radical restructuring at Bank Austria would shock the country, although its politicians remain silent for now.
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    Audio

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Federico Ghizzoni is known for his soft touch when it comes to restructuring. Unicredit subsidiaries Bank Austria and Germany’s Hypo-Vereinsbank (HVB) are about to put that deft touch to the test.

The chief executive of Italy’s Unicredit has some difficult decisions to make. Next Wednesday, he will present investors with a restructuring plan for Unicredit, Italy’s largest and most international bank.

In the face of capital market realities, Mr. Ghizzoni could be forced into some drastic moves. When it comes to Bank Austria and HVB, Germany’s third-largest bank, investors seem to be calling for blood.

“Unicredit must give up its growth ambitions and simplify its structures through the sale of either Bank Austria or Munich’s Hypo-Vereinsbank,” said Eoin Mullany of Berenberg Bank.

Mr. Mullany is one of several analysts calling for such a move, though they are unlikely to get what they want.

“Unicredit must give up its growth ambitions and simplify its structures through the sale of either Bank Austria or Munich’s Hypo-Vereinsbank”

Eoin Mullany, Berenberg Bank

Like many major European banks, Mr. Ghizzoni is expected to focus on cutting costs and closing branches. The looming cutbacks signal that the Italian parent company’s strategy of owning largely independent subsidiaries may have reached its limits.

The Unicredit boss has already announced a series of drastic moves in the past year for HVB. In an interview with Handelsblatt in September, Mr. Ghizzoni also signaled that the bank could not be left to its own devices.

Given some of those past moves, industry experts don’t expect Unicredit to dramatically intensify its restructuring plan for HVB. Mr. Ghizzoni is however considering some radical measures for its Austrian counterpart.

As one of the European finance sector’s architectural icons, Bank Austria’s impressive headquarters in Vienna exudes tradition and self-confidence.

If Federico Ghizzoni, head of Italian parent company Unicredit, is serious about the firm’s restructuring of Bank Austria, then the striking 1912 structure may come to symbolize something quite different for Austria’s biggest bank.

Mr. Ghizzoni, for instance, is considering selling Bank Austria’s business with private customers and small to mid-sized companies, according to bank insiders. That would impact more than 1.6 million customers and 3,500 employees.

Unicredit also would like to transfer Bank Austria’s holding company for business in Eastern Europe to Milan from Vienna.

But carving up Bank Austria would come as a shock to the country. Officially, its politicians have been silent. But behind closed doors, their frustration and disgust are evident.

That Mr. Ghizzoni is willing to go to such lengths shows how much pressure he is under.

“A restructuring is necessary and it won’t be easy,” said Italian economics professor Giorgio di Giorgio in a blunt assessment.

Unicredit posted €1 billion, or about $1.1 billion, in earnings in the first half of this year – of which HVB was the biggest contributor with €320 million. While not too bad at first glance, that’s just half as much as Intesa, Unicredit’s hometown rival in Milan.

There’s also Unicredit’s comparatively thin equity capital, its up-and-down share price and consistent rumblings among investors.

That’s why Mr. Ghizzoni is coming out with his “Strategic Plan 2016-2018.”

The restructuring specialist with the soft touch needs to prove he can implement tough measures. And he just may be up to the task.

According to one company source, Mr. Ghizzoni is considering cutting 12,000 jobs – 2,000 more than previously announced. Of those, only 1,200 positions are to be cut at HVB, mostly in administration. The bank already eliminated 1,500 jobs at branches in Germany, while reducing the number of branches from 341 to 234.

In September, the Unicredit chief executive told Handelsblatt that he wanted more centralization of areas such as bookkeeping, risk assessment and auditing. Unicredit also has no plans to divest HVB through an initial public offering or otherwise, he said, quashing the dreams of independence harbored by some at the German bank.

Different than at Bank Austria, the German subsidiary would see no significant changes in its corporate structure, nor would it be sold off in pieces, as Mr. Ghizzoni is considering for Bank Austria, a company source said.

Nevertheless, HVB’s high costs remain a thorn in Mr. Ghizzoni’s side. By spending 75 euro cents for every euro it earns, HVB’s costs are much higher than both Unicredit’s and Bank Austria’s.

But going into his presentation to investors next week, Mr. Ghizzoni has still bigger thorns in his side stemming from headlines that appeared last month linking Unicredit with the mafia.

Prosecutors in Italy opened an investigation into a Unicredit loan for a Sicilian construction company whose boss lives in Tuscany and has contact with the head of crime syndicate Cosa Nostra. After one construction company employee mentioned the name Fabrizio Palenzona, a powerful vice president at Unicredit, prosecutors raided the homes and offices of Mr. Palenzona and others, and confiscated documents.

Last Saturday, however, an Italian court declared the seizure illegal.

Mr. Ghizzoni, desperately seeking to ease concerns over the affair, wrote a letter to all 127,000 employees of the bank in which he confirmed “with certainty” that there was no wrongdoing.

But there may still be some short-term, negative fallout for the bank, cautioned Mr. Di Giorgio. Italian newspaper La Stampa, on the other hand, believes the fallout could be more than a short-term issue.

“An image problem can be worse for a bank than a downgrade from Moody’s,” commented the paper.

 

Regina Krieger is Handelsblatt’s correspondent based in Milan, Michael Maisch is Handelsblatt’s deputy finance chief in Frankfurt and Hans-Peter Siebenhaar covers developments in Eastern and Central Europe out of Vienna. To contact the authors: Krieger@handelsblatt.com, Maisch@handelsblatt.com and Siebenhaar@handelsblatt.com

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