A €300m purchase of a Romanian subsidiary of Greece’s Alpha Bank was probably not what some UniCredit shareholders envisaged when Andrea Orcel arrived as group CEO in April 2021.
Orcel, the foremost M&A banker of his generation, had been expected to make a bigger splash. But since taking the top job, he has shown a clear reticence to embark on deals unless the terms were exactly right — and it has been a litany of near-misses.
In July 2021, he began talks with the Italian government over a potential acquisition of Monte dei Paschi di Siena but failed to reach an agreement. Last year he attempted to bolster UniCredit’s domestic footprint with a plan to acquire Banco BPM, but pulled out when details of his intentions were leaked and drove up the target’s share price.
That followed an abortive attempt to buy Russian lender Otkritie FC Bank, which the war with Ukraine of course sent into disarray. Throughout, Orcel has been consistent in his message that any M&A would have to add value and that the success of UniCredit Unlocked, his growth strategy for the bank, does not depend on it.
Speaking at the Bank of America conference last month, he reiterated his position of preferring share buybacks over M&A: “We look at many things, but we have demonstrated over the last two and a half years that if the terms are not right we will not move. If I can buy my shares at five and a half times versus doing an acquisition at eight or nine times, then it’s a no-brainer. My job is not to go for an ego trip.”
But he also hinted at what was to come, adding: “I hope that, with the dislocation and uncertainty, at some point we will be able to do some bolt-ons in CEE or other places.”
Alpha go
The Alpha Bank deal perhaps came quicker than many expected, even coming before UniCredit was able to announce its 12th consecutive quarter of revenue growth. It fits with Orcel’s strategy of growing its market share and scale within its target markets of Italy, Germany and central and eastern Europe. According to the terms of the deal, UniCredit is taking a 9% stake in Alpha Bank and a majority stake in its Romanian unit.
Orcel said on a call announcing the deal that “for the time being and for the foreseeable future this is the best alliance we could have struck”. UniCredit’s and Alpha Bank’s merged operations will become the third-largest lender in Romania, where it will acquire two million customers, providing a growth opportunity after the challenge of having to de-risk its Russian business.
Orcel said that the deal with Alpha, which is set to close next year, is expected to add €100m in net profit to UniCredit’s balance sheet. It goes without saying that the contacts and track record of the Italian former FIG supremo loomed large on the deal — he knows Alpha Bank CEO Vassilios Psaltis well, having advised him many times over the years.
Following the Alpha Bank deal, which is expected to close during the second half of 2024, UniCredit will serve 15 million clients across 14 markets, in what Orcel refers to as ‘product factories’. This is the structure he put in place, whereby client coverage is devolved to a country level and the products are delivered from a central function. The most relevant product factory for investment banking is the corporate solutions division, which was formed in 2021 as a central component of the Unlocked strategy and serves roughly one million clients. It is part of client solutions, which is led by Richard Burton, a long-standing UniCredit banker who began his career in leveraged finance.
The purpose of Burton’s division is to ensure the bank’s captive clients receive the same products and services across all geographies and is an essential pillar of UniCredit’s ability to generate revenues from its corporate client base. The Alpha Bank deal will give UniCredit access to two million more clients.
Revamping client solutions
Two years after the creation of client solutions, UniCredit is revamping and extending the product factory. The aim is to simplify the offering to enable faster product execution and to grow the overall amount of fees it earns from its most relevant and profitable corporate clients.
A fresh set of changes unveiled by Burton last month play to this theme and indicate the bank’s determination to build on what it has achieved. “Whilst the achievements to date are notable, we are a business in transformation and are always looking to improve,” Burton wrote in a memo. “We are focused on simplifying the processes that might hold us back and open to change in order to accelerate the performance of the business and enhance the service we offer our clients.”
To this end, UniCredit has changed the make-up of corporate solutions, which was previously composed of advisory and capital markets, specialised lending, transactions and payments and client risk management.
Under the new structure, UniCredit has combined advisory and capital markets with specialised lending to create a new product group called advisory and financing solutions.
The combination caps a two-year transformation. The advisory and capital markets business is now well established, while UniCredit has also restructured and reduced risk-weighted assets in specialised lending, which comprises infrastructure, natural resources, export finance, corporate structured finance and leveraged finance.
Advisory and financing solutions will be led by Sam Kendall, who currently runs advisory and capital markets. Since arriving two years ago, Kendall, an equity capital markets banker by background who worked closely with Orcel at UBS, has reshaped the bank’s corporate finance activities. This has meant expanding beyond core strengths in debt capital markets and leveraged finance to extend its ECM platform and build out an advisory business as part of the bank’s emphasis on ‘capital-light’ products.
As a result of the changes, Goffredo Guizzardi, who previously ran advisory and financing, will help with the transition before finding a new role.
Burton has also reshuffled management within other parts of client solutions. In March this year, UniCredit separated its transactions and payments business, making global payments services a stand-alone product factory within client solutions, and creating trade and correspondent banking within client solutions.
Burton appointed Alberto Palombi to run GPS. Palombi is another close former lieutenant of Orcel, working with him at both Bank of America and UBS, where he ran the European financial sponsor business. He joined UniCredit in December, when he began working on the GPS project — and was appointed permanent head last month.
During the first nine months of the year client solutions generated revenues of €7.6bn, of which €3.8bn were generated by the newly formulated corporate solutions divisions. Within client solutions, GPS revenues jumped by 12% to €1.5bn, while revenues with individual solutions — which includes the bank’s asset management and insurance products — dropped by 3% to €2.2bn. During the same period, the bank reduced risk weighted assets within client solutions by 19% year on year, while costs fell by 8%.
As well as revamping the client solutions business for the next stage of its development, UniCredit has set the leadership and structure of HVB, its German bank, following the departure of CEO Michael Diederich, who stepped down to become CFO of Bayern Munich.
New faces in Germany
Last year, UniCredit named Marion Hoellinger, a UniCredit veteran, as Diederich’s replacement, and now it has appointed Marco Iannaccone to run client solutions in Germany. Iannaccone, who was previously deputy CEO of UniCredit Czech Republic and Slovakia, has strong operational expertise and will become a member of the German management board, replacing Christian Reusch, a 28-year veteran of the bank who will leave in January. Slavomir Bena will take over Iannaccone’s role in addition to his responsibilities as head of corporate investment banking.
“Our ambition in making these changes is to reinforce the higher value-added products and solutions that we can offer our clients, while demonstrating the exciting and dynamic career paths for our own people across geographies and business areas,” Burton said. “This streamlining of our way of working represents a significant evolution in our drive for simplification and is a stellar example of how we can think and act in an agile way across our business.”
Orcel is a strong advocate of flat management structures, which increase accountability, and has made simplicity his watchword since he arrived, first cutting the number of executive and board committee members, then slashing the total number of committees by two-thirds.
He lives by a mantra to simplify the business. “Orcel’s starting point is ‘let’s make difficult decisions’,” says one banker who has worked with him. “His preference for a flat structure doesn’t just reduce costs, it also increases speed of execution and enables the message to filter through the institution quickly. Accountability is crucial and you will never see him appoint co-heads just to avoid a difficult decision.”
Newly promoted Kendall fits the classic mould of an Orcel manager — a hands-on ‘player-coach’ who leads on transactions and pushes accountability to individuals, while constantly monitoring performance and tweaking things quickly when they need it. For example, one of his first hires, Nezahat Gultekin, who he recruited as head of advisory, left in May after just one year because Kendall saw an opportunity to speed up decision-making and execution.
He took over responsibility for the bank’s industry groups at the same time, and has continued to build them out with further hires, including Lars Dürschlag who joined this month as head of technology advisory, and Frank Bretag, who was recruited in June as head of industrials. While Unlocked is billed as a growth restructuring, it is also built on strict cost control and capital allocation, which means the investment banking business will remain a product factory to serve clients.
“We don’t want to be an investment bank in the scale of Bank of America,” Orcel said at the conference held by his former employer last month. “But we do want to focus on the mid-cap segment and provide superior service because our competitors do not reach them or do not have the capacity. Our IPO pipeline is off the charts in our client segment.”
But with big banks increasingly focusing on the mid-market, Orcel may find himself competing more and more with the very banks he is seeking to differentiate from.