UniCredit investors have had to be patient over recent years while the Italian bank looked to offload its bad loans.
With the appointment of Andrea Orcel as the group’s new CEO in April 2021, many people had questions about his strategy.
With his reputation as a dealmaker, would Orcel prioritise mergers and acquisitions or would it be time to finally reward shareholders for their patience?
A balanced approach
The answer was delivered in a strategy update in December 2021 where Orcel promised to deliver 10 per cent returns and give €16 billion back to shareholders. This will be achieved through a programme of streamlining UniCredit’s operations and cutting fees for consulting services while investing in digital technologies that will ultimately deliver savings.
The plan is ambitious but plausible. UniCredit aims to cut costs and increase revenue while freeing up more excess capital by the end of 2024. It is targeting a 10 per cent return on tangible equity, up from seven per cent expected this year.
While this will cut into some of the bank’s excess capital, it will still leave it with up to €4.5 billion extra in common equity tier one capital above the ratio the bank is targeting. This could be used for takeovers, but only if the deal is the right one.
Orcel insists that the group is under no pressure to make deals and a priority would be placed on what they are already doing. He says he will consider any potential deal but it will need to be a good strategic fit and provide real benefits to the group before he’ll consider proceeding.
One that met all of his exacting criteria is the expansion of UniCredit’s ongoing partnership with German insurance giant Allianz in Italy and Germany, as well as several central and eastern European countries.
Integrating Allianz’s digital platform will ultimately allow UniCredit to provide better service to its customers. He doesn’t expect any major cross-border bank acquisitions to happen in the near future because of the pandemic’s economic impact on Europe and the regulatory complexities currently involved.
A new emphasis on ESG
Orcel wants UniCredit to be a pioneer when it comes to sustainability as he looks to strengthen the group’s commitment to environmental, social and corporate governance (ESG) initiatives.
The group intends to set a positive example to other banks and to its own corporate clients. As well as being the right thing to do, Orcel believes that this will deliver significant benefits for the business over the coming years.
After years of having to be patient, UniCredit shareholders can look forward to significant payouts over the coming years as Andrea Orcel looks to steer the group into a new era.