IFR Editor-at-large Keith Mullin
UniCredit’s decision to ditch its London-based equity sales, trading and research (ST&R) platform and outsource it to Kepler Capital Markets is one of the smartest things the group has done in a while. I’ve long argued that having also-ran investment banking businesses in an increasingly expensive and competitive operating environment acts as a drag on the bottom line, undermines shareholder value, and gets you nowhere.
Kepler’s research, distribution and execution will support Unicredit’s Western European ECM origination effort, which remains intact. It’s a solution that should be copied by the dozens of banks that are keeping sub-standard capital markets or trading businesses going for nothing other than vanity or foolhardiness.
Apart from shuttering its Western European equity ST&R business, the group is ringfencing €43bn of non-core performing CIB assets in a run-off portfolio, while its strategic plan will see capital reallocated to core CIB clients, and the proportion of RWA related to them upped to 65% by 2015 from 55%. In addition, CIB headcount costs are being chopped by 8% next year. Focusing on core strengths where you can add superior value and enhance the client experience is hardly rocket science, but so few banks practise it.
The Kepler deal came a day after Unicredit’s €9.9bn capital increase announcement (€7.5bn rights plus the €2.4bn capitalisation of converts and hybrid equity-linked notes). The rights issue will add a chunky 142bp to CT1 on Basel III terms, while capitalising the share premium reserve will add an extra 50bp. The effect will see UniCredit reach a Basel III-compliant CT1 ratio above 9% in 2012 and in excess of 10% by 2015.
Capital increase
The capital increase news, accompanied by the decision to cut dividends and make thousands of job cuts, almost overshadowed the €10.64bn third-quarter loss caused principally by a €8.7bn goodwill impairment charge related to UniCredit’s serial acquisition strategy.
UniCredit is a strange beast; its biggest problem is that the only thing that infers oneness or unity is its name. Senior management tend to triangulate between its three head offices of Milan (ex-Credito Italiano), Munich (HVB)and Vienna (Bank Austria), and decision-making is far from linear.
UniCredit is a sprawling and complex beast covering every corner of Eastern Europe, with a convoluted brand strategy to match. It’s a management nightmare, too, with many of the group companies maintaining management independence.
UniCredit’s involvement with Yapi Kredi in Turkey, for example, comes via its 50% stake in Koç Financial Services, which in turn owns 81.8% of the Turkish bank. UniCredit similarly owns odd-lot stakes in a whole host of group institutions and now has 765 – yep 765 – fully consolidated subsidiaries.
I suspect the tighter focus on core clients and competences will result in more pruning of sub-scale businesses. But whatever happens now, management needs to do something to get the share price up. Shares were languishing at €0.74 at Tuesday’s close, 65% or so down year-to-date and more than 90% off the 2007 pre-financial crisis highs. But with €38bn of Italian government bonds in the vaults, I’m not holding my breath.
