IFR Editor-at-large Keith Mullin
UNICREDIT SHOULD TAKE a leaf out of Royal Bank of Scotland’s book and appoint an adviser to come up with potential break-up options. I think the time may have come: the strategic plan announced by chief executive Federico Ghizzoni in November made some of the right noises but is it too little too late?
The results of the programme won’t properly be known for two to three years, and the question that weighs on the mind is: will the bank that comes out of its restructuring around 2015 be a go-to player with unrivalled competitive positioning or with a unique multi-product skills-set? Call me a cynic but I doubt it on both counts.
Don’t get me wrong; I think the group has some good businesses. It ranked a creditable seventh in euro bond underwriting in 2011 and sixth in EMEA project finance, for example. But on a wallet basis, the group was running a market share of around 1.8% at the end of the third quarter in EMEA capital markets (DCM/ECM), syndicated lending and M&A with US$328m of fees (according to Freeman and Co).
That put it in 16th position and around 100bp off the bottom end of the top 10; UniCredit is in that awkward position of needing to engage in a focused build-out to get up the rankings and into the real money. But having made an overtly strategic decision not to do that, a mid-teens to low 20s league table position seems pointless.
Management has run the group loosely, almost like an investment trust that happens to own a series of banking businesses as opposed to a tightly managed integrated machine
UniCredit stock has been massacred since it unveiled its rights issue price at €1.943, a nosebleed discount of 69% to the previous day’s close. Between the post reverse stock split open on January 2 and the Friday low of €3.96, the shares were down 38%, and the rot was only halted by trading suspensions that gave sellers time to regroup. The bank was spared further ignominy by a mini-rally into Friday afternoon that traders attributed to short-covering.
In a blog back in mid-November, I described UniCredit as a “sprawling and complex beast … with a convoluted brand strategy to match”. Management has run the group loosely, almost like an investment trust that happens to own a series of banking businesses as opposed to a tightly managed integrated machine.
I reckon the component parts of the core European businesses (Credito Italiano, HVB in Germany and Bank Austria) could be unpicked if necessary and spun out as standalone operations. Of its investment banking businesses, the group has already exited Western European equity sales, trading and research. Management needs to hone in on businesses it can genuinely add value in. If it doesn’t think it can, they should sell up and get out.
SIMILAR STORY FOR UBS. The bank unveiled plans in November to slim down its investment bank, but they look a bit half-hearted to me: it’s only exiting four of 25 businesses it highlighted in its presentation (equity prop, macro directional trading, securitisation and complex structured products). It’s engineering a “large decrease” in long-end flow rates and correlation trading and a “small to medium decrease” in US credit flow and short-end flow trading, synthetic equity and equity-linked. But most of the businesses will remain as they are. My advice: don’t tinker. What is the point of a large decrease? Why not go the whole hog and just exit?
RBS HAS APPOINTED Lazard to undertake a review of selected businesses in its global banking and markets division. All the talk so far has been on getting out of equities and advisory and refocusing on core (but slimmed down) debt origination and FICC (potentially without Greenwich Capital in the US, another possible offload). Bloomberg reported on Friday that RBS Hoare Govett is looking to get into bed with Oriel Securities, a corporate and institutional broking and advisory firm where former Hoare Govett chairman Peter Meinertzhagen is a non-executive director. Oriel CEO Simon Bragg also worked at Hoare, as did head of sales Andrew Heath and head of equities Glenn Poulter.
Other than Oriel, other potential suitors for RBS’s equities business include RBC Capital Markets, and Barclays Capital. The FT threw Nomura and Canaccord into the ring, as well as Standard Chartered, Barclays or JP Morgan for the Asian business.
Like RBS, Barclays got into equities via acquisition (of Lehman Brothers’ US business). In the past couple of years, BarCap has aggressively set out to build an international equities platform and develop a leading M&A practice. The equities build-out is centred on UK corporate broking and it has made significant progress in acquiring mandates (around 23 at last count). The Hoare business would give it real credibility and would catapult it into the upper echelons of UK equity advisory.
RBS’s foray into equities, an ABN AMRO business, hasn’t really taken hold. In full-year 2009, equities revenues of £1.47bn accounted for 13.3% of overall GBM revenues (76% was FICC). While that ratio has remained more or less static, much lower divisional revenues for the first nine months of 2011 saw the equities number hit £623m, tracking an 11% annualised decline over 2010 and 44% down from the more robust 2009 numbers. Those numbers are way off the market leaders. So while they’re never going to make a meaningful contribution to GBM, the addition could be significant for the likes of BarCap. Get your cheque book out, Bob.
