Bank of the Year: UniCredit
Potential: unlocked UniCredit has gone from also-ran to superstar in just four years, to lead the European banking sector on any number of metrics. The combination of that unprecedented turnaround with audacious bids for rivals has left the bank well positioned to drive the long-awaited – and necessary – wave of European banking consolidation. It is IFR’s Bank of the Year.
The story of UniCredit over the past few years is inevitably dominated by Andrea Orcel, the bank’s CEO and Europe’s premiere banking disruptor. Nothing set the cat among the pigeons of European banking like his audacious – and contentious – bid for Germany’s Commerzbank.
It was an instance of the flamboyant dealmaking for which he has become famous (some might say infamous). And yet there’s another Orcel. The one leading a difficult, piecemeal transformation of an underperforming Italian bank that was mired in bureaucracy and too willing to accept its place as an also-ran.
But let’s start with the (still unresolved) attempt to acquire Commerz – it was after all the biggest event in European banking in 2024.
Here’s the story so far. On September 10, the German government started an effort to sell a 4.5% stake in Commerz in a block sale. By the following day, all the shares on offer had been bought by UniCredit, which had also bought a similar sized stake via the open market, spending about €1.4bn in the process.
Cue uproar – not just from Commerz, but from (some) German politicians.
The politicians – under pressure as part of a rickety coalition government – turned on Orcel. On September 23, German chancellor Olaf Scholz described the move as "an unfriendly attack".
In fact, UniCredit, Orcel insists, had been invited to buy the shares in the block sale – by the German finance ministry, no less. UniCredit – perhaps miscalculating the divisions in Germany’s coalition government – had even expected supportive noises to come from German officialdom.
Faced with the pushback, Orcel had a choice. “[We were being painted] as hostile, aggressive and uncoordinated. That we’d done the wrong thing,” Orcel told IFR. “We could not let that lie – because that [would be a reflection on] the reputation of this bank. And therefore we had two options, either we would take that and say, ‘Okay, fine, we will sell everything’. But everybody would have thought we had done something wrong. We took a second course of action. We maintained our course to 29% and put on hold any further moves until we could discuss the situation with the new [German] government.”
In other words, Orcel doubled down. That took the form of derivative deals that initially upped UniCredit’s effective stake in Commerz to 21% – and later to 28% (the initial 9.5% in shares and around 18.5% via derivatives) – while announcing that it had asked for regulatory permission to take its stake to 29.9%.
Using derivatives in M&A deals was not unprecedented but it was certainly unusual and creative.
Building a stake in that way had several advantages. One, it allowed UniCredit to act quickly. Two, it meant that the stake building did not eat up UniCredit’s capital. Three, it hedged the bank’s downside in the event that the acquisition fails to complete.
As a result, it gave UniCredit enormous optionality and allowed Orcel to present its actions as an “investment” in Commerz, while it awaits political developments – a German election in February – to see if there is a way forward, while not sitting on a large chunk of stock that will inevitably drop if the transaction falls through.
The strategy – and its many technicalities – was developed by UniCredit itself with Chicco Di Stasi, UniCredit’s head of global asset management, equity, credit sales and trading, as the driving force behind it. Di Stasi joined UniCredit in June 2023 after 15 years at UBS, and previous spells at Goldman Sachs and JP Morgan, and it’s fair to say that the pre-Orcel UniCredit would simply not have had the expertise to develop such a complex transaction.
“A few banks have told us, ‘guys, you’ve set a new standard in the market’. We cannot discuss the details of the structure, but some of the features are really very innovative,” Di Stasi said.
And you don’t just have to take his word for it, as that certainly seems to be the view of others in the market. “This was done in-house – they structured it and came up with the ideal solution. It was very elegant. This structure allows you to immediately get to the level you want, and that takes away a lot of uncertainty and anxiety from the market,” said a head of equity derivatives at a major dealer who was looking on admiringly.
Bigger picture
Of course, away from the technicalities and the will they/won’t they soap opera, there’s a bigger picture in play. The proposed deal is about transforming UniCredit, yes, but also about transforming the European banking landscape.
Indeed, for many, the proposed deal is about no less than the future of a banking union in the European Union, and keeping politicians and regulators – especially those in Germany – to their word. In particular, if the talk about a banking union, the rule of law and free markets is to mean anything, this is a deal that makes sense. After all, UniCredit already owns a bank in Germany – one that Orcel is in the process of improving and making more efficient so it delivers for the people and businesses of the country.
“I got tired of hearing things can’t be done. 'It's because of this; it's because of that; it's because of the lack of banking union' – all of the reasons that you hear all the time,” said Orcel. “We're not going to take no for an answer. We're not going to take excuses for an answer.”
Quite how it plays out now remains to be seen but there’s no doubt that Orcel has put his bank in a position to push ahead if the stars align, or to bow out gracefully – and potentially profitably – if necessary. It is also fair to say that politicians, regulators and corporate leaders elsewhere in Europe are watching this transaction very carefully, with many fully behind UniCredit’s efforts to get the Germans to live up to their rhetoric.
UniCredit is also making waves when it comes to M&A in its home market, after submitting a roughly €10bn all-share offer for rival Banco BPM on November 25. BPM’s shares are trading around €8.40 a share, well above the €6.657 UniCredit bid (a premium of just 0.5% when the bid went in), suggesting that the market thinks that Orcel – or someone else – will return with a higher offer. That’s another popcorn-muncher for European market-watchers.
Fixing the foundations
Of course, all this big-picture stuff is only possible because Orcel – and his team – have fixed the foundations of UniCredit. This is the other – often overlooked – side of Orcel’s efforts: the patient, grinding work of knocking an underperforming bank into shape. It even had a catchphrase that Orcel announced at the end of 2021: UniCredit Unlocked. The idea was that the changes he had in mind would unlock the bank’s potential. The phrase was designed to give his troops something to cling to – and rally behind – as they began the hard work of change.
When he started as CEO in April 2021, UniCredit was strikingly inefficient. It had units across 13 European countries, but each one operated to a significant degree independently. That meant 13 boards, 13 management teams and 13 IT platforms. “Thirteen of everything – all going in different directions,” Orcel said.
“And that meant no one took responsibility for anything. Because they all thought that somebody else was going to do it. We changed that,” he said. “By challenging absolutely everything and starting with a blank piece of paper and saying, ‘Why are we organised this way? Why do we do things this way?’ We have begun to address this,” he said.
“We used to have nine layers between CEO and client. Now we have four. We had 26 checkpoints to approve a mortgage. We're now down to a couple. We had 26 checkpoints to do a consumer loan. Now it's automated end to end.”
Taking out those management layers has been painful and difficult but now, after some pretty sharp staffing cuts, the bank’s cost/income ratio (at 36%) is among the best – if not the best – of full-sized European banks.
The wider results of that effort have been remarkable – on whatever metric you fancy. UniCredit’s market capitalisation is now around €69bn, making it the sixth-biggest bank in Europe, after a roughly fivefold rise in its share price since April 2021; returns to shareholders have soared (the distribution yield is 14%); profitability is through the roof (stated fees and insurance income has grown 21%; net interest income has grown by 60%); and the bank now boasts an impressive 16% CET1 ratio (some 290bp above peers). On net revenue relative to risk-weighted assets, cost/income ratio, return on equity, earnings-per-share growth and total distributions, UniCredit can boast it is number one relative to its peer group and up from much lower numbers before Orcel took over.
And that extra profitability is not about the increase in rates (and therefore net interest margin) – which has helped profitability at every bank. But about the underlying businesses – something that will, Orcel is convinced, become clear now the rate-hiking cycle has come to an end.
Paying dividends
That effort is certainly paying dividends in the bit of banking that IFR cares about most: capital markets dealmaking.
Although Orcel is not running the investment bank, his stamp on the business is clear – unsurprisingly, given he was in senior IB roles at Merrill Lynch and Bank of America from 1992 to 2012 and then spent six years reviving UBS’s investment bank.
Richard Burton, UniCredit’s head of client solutions, has been at the bank for 24 years and is well placed to judge the transformation in the four years since Orcel arrived.
“What he’s done is really simplified the model and enabled us to unlock all of the potential of the group,” Burton said. “He's put the client at the centre and empowered our people to deliver for those clients.
“We've removed the weight off people's backs while still keeping the right controls – and we’ve let the entrepreneurial spirit come out.”
The new model is a simple one: products and coverage. “I'm responsible for products. Countries are responsible for coverage, networks and clients. That sounds very simple, but before we had a corporate and investment bank and a commercial bank competing with each other.
“We’ve taken that away. We’ve taken away the silos – and that has created a positive loop.”
Results, in terms of deals and dealmaking, certainly bear out those claims.
Let’s quickly run through some examples of the kind of eye-catching and significant deals where UniCredit has been central – across bonds, loans, equities and M&A.
The bank was underwriter, bookrunner and mandated lead arranger on the €8.1bn financing backing Swisscom’s €8bn acquisition of Vodafone Italia. It also had the same roles on the financing backing Zegona’s €5bn acquisition of Vodafone Spain, including a €3.7bn bridge loan that was taken out through €1.3bn and US$900m of high-yield bonds and a €920m and US$400m term loan B. It had the same roles on German renewable energy company RWE’s €5bn sustainability-linked revolving credit facility and provided a 100% underwriting on a €3bn liquidity facility for German transmission system operator Eurogrid.
Would the pre-Orcel UniCredit have been on those kinds of deals? It’s impossible to prove the counter-factual, but it’s certainly right to say that it would have been unlikely to be driving those deals.
Take its role as one of three global coordinators underwriting the €10.5bn infrastructure financing backing a KKR-led consortium’s €18.8bn acquisition of NetCo, TIM’s fixed-line network (IFR’s EMEA Loan of the Year).
The transaction underlined UniCredit’s growing relationship with KKR – a vote of confidence from one of the world’s most savvy market players and one that doesn’t hire banks it doesn’t rate. That deal was followed by other infrastructure deals for KKR, including the takeover of Encavis and the financing of the acquisition of a 25% stake in Enilive, Italian energy company Eni’s biofuels business, for €2.94bn.
Other highlights in the bond market include bookrunner slots for the likes of Volkswagen Leasing, Knorr-Bremse, A2A, Amprion, AXA and the European Union.
In ECM, the bank’s most notable deal was as joint global coordinator for the €889m IPO of Douglas, the German perfume and beauty outfit – one of the largest IPOs in the retail sector in recent years. The shares struggled in the aftermarket, but that was hardly unusual in a tricky European IPO market.
For Sam Kendall, UniCredit’s head of advisory & financing solutions, one reason for that increased market presence is about simple hard work. He said that his part of the bank has gone from 7,000 or so client meetings in 2021 to 36,000 in 2024 – and with a smaller team. That means UniCredit people are simply in front of more clients, more regularly, presenting ideas that win business.
But it’s also about adding value. “We’re leading with content, leading with insight. We’ve really leveraged on that,” he said.
Another proof of success – if you’ll forgive us being self-referential for a moment – is that UniCredit (not previously a regular winner of IFR’s awards across asset classes and geographies) is IFR’s EMEA Loan House of the Year.
The bank has also made great progress in asset management under Di Stasi. It has created innovative new products, launched new partnerships – including with Amundi and JP Morgan – and grabbed significant market share. “We’re becoming more innovative, more agile and enjoying very good momentum,” Di Stasi said.
And it isn’t just capital markets and asset management. UniCredit has made enormous progress in below-the-radar banking activities such as foreign exchange, equity derivatives, commodities and payment solutions. It has also pushed further into the reviving Greek banking sector with the purchase in October 2023 of a 9% stake of Alpha Bank, setting up a joint venture that allows UniCredit to push its products through Alpha’s strong distribution network (and enabling a merger with Alpha’s Romanian unit).
More to do
So is it time for Orcel and his team to rest on their laurels, content with a job well done? Of course not.
Orcel said that after four years he is only just getting started on the job of reinventing his bank.
“We're probably a third to 50% [on the way to] what we need to do to truly say if, instead of being a legacy bank, we were starting from zero. When we started, the gap [to rival banks] was very significant. I now believe we are ahead of most. I have a plan and we are executing.
“We have contributed positive change to UniCredit and the sector. And in putting the debate on banking union on the table, I hope we have contributed to helping to realise the European dream.”
To see the digital version of this report, please click here.
To purchase printed copies or a PDF of this report, please email leonie.welss@lseg.com
