Why UniCredit is a victim of its own success
UniCredit’s most recent deals were in Ukraine and Kazakhstan. In July 2007, it agreed to buy 95% of Ukraine’s Ukrsotsbank from Interpipe Group for $2.2 billion. Also last year, UniCredit bought a majority shareholding in Kazakhstan’s ATF Bank for $2.3 billion. Although both deals made sense – they provide the Italian firm with a foothold in the nascent banking markets in the region – analysts believe they came at a price.
“We believe the acquisition was expensive,” was the judgment of Alessandro Roccati, analyst at Fox-Pitt Kelton Cochran Caronia Waller of the Ukrsotsbank transaction.
He is critical of the ATF deal too. “We believe the deal makes strategic sense but was done at the wrong time and at the wrong price,” he says.
Erich Hampel, head of the CEE division at UniCredit, says: “Such deals always have to be evaluated in the medium to long term. Taking into account that the Kazakh market is expected to be one of the fast-growing markets in the region, we believe the price was fair.”
These acquisitions are likely to be the last for a few years at least. Instead UniCredit is targeting organic growth, with the most important markets being Poland, Turkey, Russia, Ukraine and Romania.
In Turkey, for example, its subsidiary, Yapi Kredi (in which it jointly holds an 81.8% stake with the Koc Group), will open 350 new branches and focus on mortgages, credit cards and financing small and medium-sized enterprises.
In Romania, where UniCredit merged three entities to create UniCredit Tiriac Bank, the target is to open about 300 branches over the next three years to take advantage of the strong growth of the retail market.
In Russia, UniCredit has a two-pronged approach. Through its subsidiary, International Moscow Bank, it plans to concentrate on retail banking, although competition will be especially tough given that it is only the sixth-biggest bank in the country. Moreover, Raiffeisen International has a much bigger presence. At the same time, UniCredit owns a brokerage, Aton Capital, through which it hopes to strengthen its investment banking business.
The strategy in the other markets will be much more selective. In the Baltic States, for example, the emphasis will be primarily on corporate banking. In Slovakia, in contrast, the priority will be on retail.
UniCredit’s focus on central and eastern Europe is the right strategy. These are still growing markets, although there are risks, especially related to households’ unhedged FX exposures and some possible deterioration in credit quality.
If the bank is successful in executing its plan over the next three years, its share price will soon start shooting back up again.
| CEE: the growth engine | |||||||||
| UniCredit groups main divisional results H1, 2008 in Eu mln | |||||||||
| Retail | Corporate | Private banking | Asset management | Markets and investment banking | Poland markets | CEE | Parent Co and other subsidiaries | Consolidated group total | |
| Operating income | |||||||||
| H1 2008 | 5,681 | 3,066 | 743 | 609 | 504 | 1,122 | 2,145 | 173 | 14,043 |
| Change over H1 07 pro-forma | 3.7% | 3% | 0.5% | 23% | N/A | 5.9% | 36.6% | N/A | 9.6% |
| Operating costs | |||||||||
| H1 2008 | 3,694 | 1,001 | 448 | 260 | 731 | 521 | 1,057 | 649 | 8,361 |
| Change over H1 07 pro-forma | 2.4% | 5% | 4.4% | 19.8% | 21.5% | 11.6% | 34% | N/A | 4.7% |
| Operating profit | |||||||||
| H1 2008 | 1,987 | 2,065 | 295 | 349 | 227 | 601 | 1,088 | 476 | 5,682 |
| Change over H1 07 pro-forma | 6.3% | 2% | 4.8% | 25.3% | N/A | 1.5% | 39.3% | N/A | 24.8% |
| Profit before tax | |||||||||
| H1 2008 | 1,335 | 1,534 | 312 | 373 | 293 | 568 | 926 | 378 | 4,377 |
| Change over H1 07 pro-forma | 5.6% | 1.4% | 5.4% | 20.5% | N/A | 2.9% | 36.4% | N/A | 32.3% |
| For parent company and other subsidiaries consolidation adjustment is included | |||||||||
| Source: UniCredit | |||||||||
