Mission impossible? UniCredit pushes European pedigree
Under the guide of a new head of funding, UniCredit has made waves in the capital markets this year even as Italy has suffered amid political uncertainty and a scandal-plagued banking sector. Will Caiger-Smith reports on a bank that wants to be bigger than its home country.
Waleed El-Amir, who replaced Philipp Waldstein as UniCredit’s head of funding last October, has had a busy year.
Having started off his time at the bank with a storming €1.25bn tier two deal, which reignited investors’ passion for peripheral bank credits, he has had time to direct several senior deals, three covered bonds and tier two bonds in US dollars and Singapore dollars.
Given the noise around peripheral credits — which intensified around Italy in the wake of February’s inconclusive general election, Silvio Berlusconi’s trial for abuse of office, and scandal around lenders such as Banca Monte Paschi di Siena — UniCredit’s record in tier two debt over the past 12 months is particularly impressive.
The bank has placed three lower tier two bonds in the past 12 months, taking a different strategy each time in accordance with what the market was offering. But El-Amir shies away from calling the bank’s approach opportunistic.
“The word opportunistic has always had a strange feel for me,” he says. “It is more about giving the market what it wants at the time. If the market is chasing a product and we can get a good price, we will do it. We like to have flexibility built into our plans, so for example we pre-fund if there is a positive market backdrop. It is very difficult to do deals if you’re trying to force them.”
The tier two euro deal the bank sold last October, which was taken up to €1.5bn by a subsequent re-opening, used a 10 year bullet structure. UniCredit also placed a $750m 10 year non-call five deal in April, but El-Amir is particularly proud of the S$300m 10.5 year non-call 5.5 Singapore dollar deal it printed in January.
Asian demand, particularly among private bank investors, has been a big supporter of European capital issuance over the past 12 months or so — it did wane slightly earlier in the year, but it is now coming back. But a tax issue made it difficult for UniCredit to print into Hong Kong, where most of those investors are based, so El-Amir decided to sidestep that market.
“Asia is an important market for us, and we wanted get our name out there, but we couldn’t do a broader deal because Hong Kong is not whitelisted from an Italian tax perspective and therefore withholding is applied. But I was keen to put bonds into Asian investors’ hands, so that once the tax issue is sorted out, we are not starting from zero in Asia.”
The bank has also had success in covered bonds, which are always seen as a safe bet for issuers that are struggling against negative political or economic backdrops. Senior debt is more challenging, but UniCredit has done well, printing €3.5bn in the asset class since the start of last September.
Wholesale funding is only part of the picture at UniCredit, however. When it formulated a five year funding plan in 2011, it based it upon the assumption that it would not have access to the senior unsecured market.
“For a bank with €1tr in assets, that is a big strength — having a choice not to come to the wholesale market,” says El-Amir. “There is basically a balance between what our strategy is towards our retail network, with network bonds and term deposits, and what we do in the wholesale markets. We look at retail first and then work out what to do in the capital markets.”
Between 30% and 40% of UniCredit’s liabilities are within the retail space. That retail funding is split into two sections — funding it gathers through its own network, from its own customers, and paper it sells to third party houses, which then sell it on to their own clients.
“This year we didn’t go outside our own retail network,” he says. “Third party networks are getting harder to use.
“We may use more third party funding in 2014. My philosophy is to keep investors hungry for our paper and not overload any one market too much.”
But UniCredit continues to be dogged by its Italian parentage. Changing this has been El-Amir’s ultimate objective since day one, and it still is today.
“Our biggest challenge is that UniCredit SpA issuance continues to trade very close to BTPs. The market is trading us as a pure Italian credit when the holding company only has 35% of RWAs in Italy.
“That is illogical and our real challenge is convincing people that we are pan-European. Our business model is close to break-even in Italy and our CEE markets are still making money — so price our credit in that way, and give us credit for the diversification we have. That is our mission impossible at the moment.”