Should UniCredit, under a new chief executive, try to be more like Intesa Sanpaolo?
Given the two Italian banks’ relative share-price performances, especially in 2020, it is a valid question. UniCredit’s increasingly weak profitability compared with Intesa’s is important to its Italian clients, who are unusually sensitive to their bank’s solidity.
Italian retail banking, of course, has never been UniCredit’s strongest point – unlike at Intesa.
That’s why Jean Pierre Mustier, who is stepping down as UniCredit’s chief executive in April, put more emphasis on providing fee-earning services for internationally oriented corporates across Europe.
But it is also understandable why some on UniCredit’s board would have been frustrated with this strategy and with Mustier’s attendant opposition to mergers with other Italian retail banks.
Intesa has been far quicker to take advantage of such opportunities, to the growing advantage of its share price.
Fresh start
That makes it justifiable for UniCredit’s board to want a fresh start under a CEO who might focus more on the bank’s home market – perhaps an Italian with international experience. Mustier, in any case, will have led the bank for almost five years – not a bad tenure for any chief executive, especially one as energetic and in need of fresh challenges as him.
Pushing Mustier out in early December, however, looked like a politically motivated coup that was at odds with the interests of international shareholders – something designed to hasten an acquisition of nationalized lender Banca Monte dei Paschi di Siena (MPS). UniCredit’s stock fell 10% on the news.
Whatever the real motivation, it would have been far better (except for journalists) if the board had waited until early February. The decision could then have come at fourth-quarter results.
That would have made it look more conventional and measured, just ahead of the end of Mustier’s term in April. And international investors wouldn’t have been quite so jittery.
Board member Pier Carlo Padoan, who is due to take over as chairman in April, has since given a couple of interviews.
He has insisted MPS had nothing to do with Mustier’s departure. He has said his own appointment in October was entirely separate to his prior attachment to the Democratic Party, which controls Italy’s finance ministry.
The official message is therefore that the disagreement with Mustier was more about the principle of whether or not it should do M&A. But investors don’t seem to have listened. After all, what is the difference between the principle and the thing itself, when a UniCredit merger may be the only way to prevent MPS getting wound down?
Symbolism
Mustier’s exit was done in a way so contrary to what investors would have liked that one even wonders if there was a bit of political spectacle in it.
Remember that Padoan, as finance minister, oversaw MPS’s 2017 bailout. He then became the member of parliament for Siena in 2018, only stepping down for the UniCredit job.
But the decision wasn’t just Padoan’s.
Mustier’s opposition to mergers has been grating to many in the local establishment because, as CEO of UniCredit – and a French one at that – he has sold precisely the sorts of asset and wealth-management businesses that make Italian banking work so well for rival Intesa.
Rushing to get rid of the CEO has consequently undermined investor confidence
The symbolism of Mustier’s project to create a separate holding company for the international businesses was terrible in this context – even if it was firstly just to avoid paying too much for subordinated debt.
He recently rowed back on the idea, but nationalist suspicion about the risks to an Italian corporate champion remained.
Let’s be clear, though: an MPS deal was never going to be easy. The bank needs to de-risk its loan book and legal liabilities first, which will be complex.
The state and bank must decide, for example, whether to settle claims around market disclosures between 2008 and 2015, getting them out of the way, or else contest them and thereby set a precedent.
After Mustier’s untimely exit, however, any deal will come with heightened suspicions of political influence, no matter what the terms.
A source close to MPS and the finance ministry says Mustier was open to a deal, and it will be harder to negotiate and agree a takeover when UniCredit is between CEOs.
Optics
Rushing to get rid of the CEO has consequently undermined investor confidence and possibly delayed an UniCredit-MPS tie-up too.
It makes the board look incompetent, weak – or both.
One source says : “It was obvious that the stock would take a hit, as investors like Mustier, but [the board] didn’t realise the price would crater.”
This raises important issues for UniCredit.
Mustier wanted the board to be more European and international after he arrived. In its 2017 rights issue, developed-market international institutional investors gained in importance in its shareholder base at the expense of local bank foundations and the Libyan central bank.
Today, none of UniCredit’s important shareholders are Italian.
It makes most of its money outside Italy. Only three of its 13 board members aren’t Italian. Its chairman Cesare Bisoni, vice-chairman Lamberto Andreotti and the head of its governance committee Stefano Micossi are all septuagenarian Italian men.
Meanwhile, a certain centralization of power around Mustier may have sparked more worry on the board. His combination of charisma, intellect and experience is unmatched in European banking, let alone at UniCredit.
He may have been a little short of patience with his directors, who generally boast little experience running big businesses.
Once Padoan had arrived, perhaps the rest of the board of directors – uncertain of their own capacity – thought it best to remove Mustier as soon as they had the chance.
