On the face of it, UniCredit’s purchase of Alpha Bank’s Romania business is primarily about Romania. Romania, indeed, is the most obvious country where UniCredit should be expanding via M&A. It is a relatively high growth and liberal country where UniCredit has a substantial if arguably subscale presence. But the bank has passed by other opportunities to grow via M&A in this market, notably a recent auction of Hungarian group OTP’s Romanian business.
UniCredit is paying €300 million in cash for Alpha’s Romanian operations, with the Greek bank retaining a 9% stake in its subsidiary. This will cost UniCredit only 15 basis points in capital, which is not much considering the bank is running with excess capital of more than 400bp. That will keep investors who are hungry for share buybacks and dividends satisfied.
Yet a corollary of the deal with Alpha will see UniCredit expand in a fellow southern European EU country, Greece – albeit for now only in life insurance and asset management. Even if Andrea Orcel has stepped back from the obvious scope to take M&A opportunities in Italy, this will placate those inside the bank who would like to see a more aggressive approach to growth.
Orcel’s strategy
The Greek plank of the deal has three interlinked elements, and it is all about Orcel’s strategy to build back parts of its product factories in areas such as asset management and insurance after former CEO Jean Pierre Mustier sold its asset management business, Pioneer, to Crédit Agricole-owned Amundi in 2016.
UniCredit is buying 51% of the Greek bank’s life insurance business, AlphaLife. The two banks have also agreed for Alpha to distribute products in Greece from UniCredit’s new mutual fund platform, onemarkets. The deal is, therefore, “an example of UniCredit’s factories adding value to third parties” by “distributing its best-in-class products into new markets”, according to the bank.
Meanwhile, and perhaps most importantly, UniCredit has applied to buy all of the 9% in Alpha Bank held by Greece’s bailout vehicle, the Hellenic Financial Stability Fund.
This seems very similar to Crédit Agricole’s international strategy, including the French bank’s acquisition in April last year of a 9.18% stake in Italian mid-tier lender Banco BPM – the main Italian bank to which UniCredit has been linked in terms of its M&A opportunities in its home market. Crédit Agricole has built up pan-European businesses in areas such as asset management and insurance, even in countries where it does not have a large retail bank, as well as in Italy.
As with Crédit Agricole at Banco BPM, taking a minority stake will solidify a partnership for distributing products manufactured by the bigger bank, which could be expanded to other products in the future. In UniCredit’s case, this may include regional transaction banking, syndicated lending and advisory.
The hint that other European banks could return to Greece as owners of large retail banks is clearly important for Greece
Of course, it has led to questions about whether – in the longer term – there will be a full takeover, which is precisely what happened in 2021 in the case of Credito Valtellinese (Creval). Crédit Agricole initially bought a 5% stake in the Italian lender as part of a life insurance purchase and distribution agreement in 2018.
For Alpha Bank, this deal will include a partial loss to the franchise, as Romania was still the crown jewel of its remaining international business, offering better growth prospects in areas such as mortgages than its main domestic business. Yet Alpha is lower on capital than other Greek banks and its relative valuation has suffered as a result. It has traded at a lower value than other Greek and European banks, including UniCredit. The Romania deal will allow Alpha to increase its common equity tier-1 ratio by 100bp.
The hint that other European banks could return to Greece as owners of large retail banks is clearly important for Greece and Europe. It might also make more sense now, given the small market capitalizations of Greek banks after their post-crisis restructurings and their consequent difficulty in attracting investor attention.
Euromoney asked Orcel about expansion in Greece a year ago and, at the time, he seemed uncertain. The Greek centre-right’s victory over left and far-left opponents in elections this year will have been a reassurance for him and for UniCredit’s other stakeholders. Just a few days before UniCredit announced its deal with Alpha, Standard & Poor’s raised the Greek sovereign to investment grade for the first time since the sovereign debt crisis.
