| Roberto Nicastro | ||||||
UniCredito Italiano is on the verge of purchasing yet another bank in central and eastern Europe. In March, the Italian bank, together with German insurance group Allianz, took a further 59.1% in Croatia’s Zagrebacka Banka, adding to the 20% stake UniCredito and Allianz already holds. At press time UniCredito had launched a $130 million mandatory cash offer for the remaining voting shares in the bank.
With this, UniCredito will become one of the handful of foreign banks that have become key regional players in central and eastern Europe (CEE). “With the Zagrebacka Banca transaction, we think we become the number one group in the region by total banking assets,” says Roberto Nicastro, deputy CEO and head of the foreign banks and new growth division. “But the difference is marginal between us, KBC and HypoVereinsbank.”
Nicastro was involved in the execution of UniCredito’s very first acquisition in the region: Bank Pekao in Poland. Now the bank also has a presence in Bulgaria with Bulbank and an investment in Pol’nobanka in Slovakia as well as its Croatian interest. It wants to finalize its acquisition of Demirbank in Romania and is also looking to complete a joint venture in Turkey with Koc Group.
UniCredito wants to expand in CEE because it predicts that the multiplier between the percentage of GDP growth and banking assets will be between two and three times there, compared with a 1.3% multiplier in western Europe. It only looks at EU accession candidates, where the risk profile is relatively low and uniform between countries, as all governments are on a reform drive to meet acquis communautaire requirements. “There’s a clear difference to Latin America on this basis,” says Nicastro.
For this reason, the bank is not looking at Russia or Ukraine. “For our model, it’s too early to invest in Russia. We need at least a couple more years of stabilization. One of the worst potential nightmares you can have as a banker is that one little branch somewhere does money laundering. It takes some time to set up a system that enables you to control every branch, so you could enter Russia tomorrow and realize that you were in this situation.”
Nicastro, who spends four days out of five travelling round his CEE investments, explains that the choice of where to invest in the region has been driven on an ad hoc basis where privatizations have occurred and opportunities have opened up. “We are not in the Czech Republic or Hungary because there haven’t been the opportunities,” says Nicastro. “We lost to SG over Komercni Banka, but then SG offered 10% more than we did. It is difficult to see whether this was too much or enough. You have to wait a couple of years to see results of the investment.”
The bank’s approach in CEE is to purchase banks of reasonable size and decent asset quality and, where possible, good management. The countries in CEE where UniCredito has acquired assets are sufficiently similar to develop one common business model for the UniCredito Group, while capitalizing on local knowledge. Nicastro says: “We like to say that what we are trying to build is a Ferrari in each country where the manager or driver, the Michael Schumacher, must be a local, but possibly work with an Italian co-driver who knows how the engine of the bank works.”
He cites Maria Wisniewska, the Polish president of Bank Pekao in Poland, who was recently voted one of the top 25 businesswomen in Europe in a newspaper survey, as an example of the local talent at UniCredito’s disposal. Pekao made a net profit of Zl1.26 billion ($306 million) last year, up 65% on the previous year, which made it the strongest-performing bank in Poland. However, Nicastro concedes it is not always possible to find the talent he seeks locally or buy Ferraris throughout CEE outright. “Sometimes you have to buy a Volkswagen and change the tyres and the engine while you are there.”
For Nicastro, Croatia, where UniCredito has finalized its latest acquisition, is an example of a CEE state with a great deal of hidden potential, and indeed, hidden wealth. “Croatia has a GDP per capita which is in line with Poland, but wealth per capita is higher. I was amazed that in the last two months of 2001, as a result of the euro changeover, there were queues of Croatian ladies bringing their Deutschmarks from under their mattresses, which increased the deposit base by 15%.”
Yet turning in improved profits in this region is tough as lending activity is extremely low. “In order to be able to lend more, you need to have rating scoring, then you have to have the economy going up and a concerted effort by authorities to improve the overall credit infrastructure. There is no basic credit register or banking separation. Yes, you have the acquis communautaire but then you don’t really know how judges are going to implement the new regulations in each country.”
Nevertheless, UniCredito’s strategy appears to be working. Before the Zagrebacka Banka, acquisition, the bank had invested e1.7 billion ($1.5 billion) in central and eastern Europe and Nicastro says that this year it will be fetching nearly e240 million in group net income from the region. And whereas before only 25% of revenue generated from CEE came from outside Poland and Bank Pekao, Nicastro estimates that when the new investments in Romania, Turkey and Croatia are integrated into the group, the bank’s CEE empire outside Poland will contribute more like 50%.
Acquisitions in the region have produced unexpected benefits apart from a high proportion of the group’s revenue. The weekend before Nicastro met Euromoney, he had been at UniCredito’s international skiing competition for staff throughout the entire group. “We had awful weather so we couldn’t do the downhill race but the Slovaks won the cross-country and beat all the Italians.”
