When Andrea Orcel fired the head of UniCredit’s Italian business in 2022, the chief executive replaced him with the only person he trusted to do the job properly: himself.
Even for a hard-charging banker with a reputation for ruthlessness, Orcel caught staff off guard with the move. But it has typified his approach to running Italy’s second-biggest bank for the past three years.
“It was a signal that he was not going to mess around — he wanted to see accountability and action,” said a top-five shareholder in UniCredit. “He was saying, ‘If you don’t do what I want, I will do it by myself and show you how it is done.’
“That was a pivotal moment for the organisation under Andrea.”
When Orcel joined UniCredit, it was still emerging from a painful restructuring under his predecessor, Jean Pierre Mustier, who had left the bank after disagreeing with the board over the direction of future expansion.
Orcel is little closer to resolving that debate. What he has done is presided over the quadrupling of the bank’s share price after years of lacklustre performance, the result of operational efficiencies, culture change — and profits derived from rising interest rates.
UniCredit is the best-performing large European bank stock since Orcel took over.
But with the chief executive signing up for another three-year term in April with a package that puts him among the highest-paid bank bosses in Europe, it is two other issues that will define his legacy: whether he will do the kind of transformational deal long expected from Europe’s best-known M&A banker; and if he can extricate UniCredit from its profitable business in Russia.
“We were a restructuring story, but now we’re more into blue-chip land,” Orcel told the Financial Times during an interview at the bank’s Milan headquarters. “We will prove everybody wrong again in the next three years.”
Mustier set the foundations for the share price rise by clearing up UniCredit’s balance sheet, offloading €50bn in bad loans and bolstering its capital through selling businesses worth €15bn and raising €13bn in new equity.
Yet even as Mustier rationalised the bank, some shareholders criticised his sales of profitable subsidiaries, such as asset manager Pioneer to Amundi and the online brokerage Fineco.
“Orcel definitely came at the right time after some heavy lifting by Mustier and as rates started to rise, but he brought a fresh perspective,” said Jefferies analyst Marco Nicolai.
When UniCredit’s board chose Orcel to replace Mustier, staff feared his demanding management style — honed at the investment banks of Merrill Lynch and UBS — would clash with the lender’s more laid-back culture. But people who have worked with Orcel over the years say he has mellowed.
Since joining, Orcel has made a habit of regularly visiting branches in the bank’s extensive network across Italy and central and eastern Europe — a practice staff say was not pursued by his predecessors.
At the Piazza Tommaso Edison branch in central Milan, staff show off the selfies they took with Orcel on a recent visit, while recalling how he wanted to be walked through the new account application process. This has come down from taking an hour and a half to just 20 minutes, they claim.
Orcel has focused on better use of technology to speed up common tasks, while also stripping back spending. Consulting fees have close to halved since 2020, to €83mn last year. The bank has shed 13 per cent of its workforce, or 11,000 jobs. In his three years, UniCredit’s cost-to-income ratio has fallen from 51.5 per cent to 36.2 per cent.
He has also sought to strengthen the bank’s fee-generating business lines, such as payments, advice, insurance and asset management.
But, as with most European banks, part of UniCredit’s share price rise is down to a windfall from the speed of rising interest rates in recent years, which has boosted its profits. In February, UniCredit pledged to return its entire 2023 profit pool of €8.6bn to shareholders in the form of dividends and buybacks.
For analysts and investors in the bank, Orcel’s work in his first three years is a clear sign he is positioning the business to swoop on smaller banks in Italy and the rest of Europe. Last year, UniCredit’s domestic business accounted for 49 per cent of group profits, compared with 60 per cent in 2022.
By getting UniCredit’s share price within touching distance of its tangible book value — having traded at a 70 per cent discount when he took over — Orcel has strengthened the bank’s acquisition currency, while the operational efficiencies he has pushed through have made it easier to bolt on other businesses.
The bank’s pan-European footprint is already the result of an acquisition spree throughout the late 1990s and early 2000s that turned a midsize lender founded in Genoa into one of Europe’s biggest financial groups.
Under Orcel, UniCredit has been linked with deals for several Italian and other European lenders, including Germany’s Commerzbank and Milan’s Banco BPM. His decision to abort a takeover of state-owned Monte dei Paschi di Siena in late 2021 led to strained relations with the Italian Treasury.
Recent comments by French President Emmanuel Macron that were supportive of Europe’s capital markets union and cross-border dealmaking have prompted market speculation that UniCredit could look to do a deal for Société Générale.
But Orcel ruled out a move for France’s third-biggest bank to the FT, not least because UniCredit does not have a strong presence in the country.
Germany is a more likely place for expansion, given the potential synergies with UniCredit’s local HypoVereinsbank subsidiary. Talks with Commerzbank have taken place on at least two occasions, yet investors are sceptical.
“The French and German governments would not allow an Italian bank to take over any of their big financial institutions,” said the top 5 shareholder. “If he doesn’t do any M&A and continues to distribute cash to us, we will be very happy.”
The recent deal with Greece’s Alpha Bank — where the Italian lender bought a 9 per cent stake and took majority control of its Romanian business — may provide a template for other deals.
“Here he is dipping his toe in the water and getting information on Alpha Bank, which I think is a starting position to buy the whole business, probably in a stock deal,” said Cole Smead, chief executive of Smead Capital, a UniCredit investor.
Orcel’s other big European problem is Russia — previously a target for expansion.
UniCredit has the second-biggest presence in the country of any western bank. Orcel was one of several prominent Italian business leaders who joined a video call with Russian President Vladimir Putin as his troops amassed on the Ukrainian border, causing embarrassment in Rome.
The bank had been due to buy Russia’s Bank Otkritie, but pulled out of the deal when Moscow invaded Ukraine in early 2022.
Since then, Orcel has talked about winding down the business, but unlike the speedy exit of SocGen or domestic rival Intesa Sanpaolo, which has agreed a deal to quit the country, UniCredit has yet to do so.
UniCredit has cut back its exposure, though Orcel has maintained he is unwilling to sell the business to Kremlin favourites on the cheap. Sales of foreign bank subsidiaries need to be rubber-stamped by Putin.
The bank was one of several lenders that the European Central Bank wrote to in recent weeks, asking them to speed up their exits from Russia on fears of potential enforcement action from US regulators.
Despite the €137mn of profits UniCredit was able to repatriate from its Russian subsidiary last year, staying in Russia comes with more than just reputational risks. In May, a St Petersburg court ordered €463mn of assets to be seized from the unit.
“Selling or extracting yourself from Russia by selling your bank or by finding other schemes is extremely complicated because you need to fit in an ever-diminishing grey area where you fit the political will and avoid the sanctions of both sides,” Orcel said.
“It doesn’t mean we stop trying. We’re constantly looking at alternatives, but the probabilities are low.”
Even if Orcel manages to negotiate an exit from the country, the bigger question over UniCredit’s direction still lingers.
“UniCredit needs to decide what they want to be,” said Filippo Alloatti, head of financials at Federated Hermes, a UniCredit bondholder.
“Do they want to be an Italian bank that controls the domestic market or a pan-European bank?”