The last time the bank tried a giant loan loss provision and hiving off of non-performing loans was three years ago, but since then, there have been a succession of management revamps, cost-cutting exercises and non-performing loan disposals.
In a sense, then, there’s little that’s truly new about Jean-Pierre Mustier’s plan for UniCredit, unveiled at the firm’s capital markets day in London on Tuesday.
The basic contours of big bank strategic plans look familiar by now. Cut costs faster than before, take less risk, cross-sell more products, work through bad loans and legacy assets.
Exactly what to cut depends on the bank. For UniCredit, the axe will fall on retail bankers and branches, especially in overbanked Italy. For Credit Suisse last week, the cuts fall harder on global markets.
The other part is to find the bank’s strengths and differentiating points. In UniCredit’s case, it’s a commanding position in the high growth central and eastern European economies, while for Credit Suisse, it’s wealth management and private banking, plus what the bank clumsily calls UHNWIs (the very rich).
Other standard strategy moves include selling off the products of past empire-building, especially ones which don’t trade too far below book value. That, in UniCredit’s case, meant Pioneer Investments and Bank Pekao; for Deutsche it’s about selling Abbey Life and Hua Xia, while for HSBC it was operations in Turkey and Brazil.
And, of course, there’s raising capital. UniCredit has a €13bn rights issue underwritten and ready to go when shareholders agree in January; there’ll be no cornerstones, no Qatari billions, but the banks are all signed on and the deal will go ahead, one way or another. Almost all of the capital increase will drain away through loan write-downs, but that doesn’t mean it’s a waste of time — headroom to dispose of its non-performing loans is exactly what the bank needs.
To that end, there’s a UniCredit-specific tweak — a €17.7bn bad loan securitization disposal, to Fortress and Pimco.
That’s not new territory for UniCredit either, but it’s certainly stepping it up a gear. It’s already sold loan portfolios to Fortress, AnaCap, KKR and others, but the largest deal so far has been €2.4bn.
Better, harder, faster
So the big picture is more of the same, but better, faster and harder — like all new chief executives, Mustier is trying to push all the bad news out quickly, “kitchen-sinking” to make next year’s performance look better.
But what makes UniCredit’s strategy special this time around — and the market certainly thinks it is, since the shares have closed up nearly 16% — is that it doesn’t assume that market conditions will come along and bail it out.
The bank’s plan has revenues up just 0.6% by 2019, with an extra €40bn of risk-weighted assets. That sounds like a poor trade, taken on its own, but it makes analysts use words like “sustainable” and “credible”. The bank has assumed interest rates stay flat or negative for the foreseeable future; its strategy bakes in three month Euribor at -5bp in 2019.
It’s worth comparing that with Credit Suisse. The Swiss firm’s successive strategies have included ever-firmer cost-cutting targets, as the market has slid away from its areas of greatest strength, like leveraged finance and securitization.
But to come up with decent looking projections for its market division, it’s had to come up with some heroic-looking revenue targets — a 60% jump in revenues in investment banking, at the same time as the division cuts staff and risk-taking capacity.
Addicts to all kinds of substances ask for the serenity to accept the things they cannot change; since Mustier seems to have done that, perhaps this plan really is the one where UniCredit kicks the habit.