Profumo’s luck runs out


Published on:

Despite transforming UniCredit’s business, Italy’s most controversial banker lost one too many battles with the bank’s shareholders

Alessandro Profumo’s 13-year tenure at the helm of UniCredit ended in acrimony yesterday after one dispute too many with the bank’s powerful shareholders, the foundations that have close connections to Italy’s political establishment.

The latest controversy centred on the growing influence of two Libyan institutions – the country’s sovereign wealth fund and its central bank – on UniCredit. Encouraged by Profumo to provide capital to the bank, the two Libyan institutions own a combined 7.4% stake in UniCredit, making them the biggest shareholders. Their presence prompted a backlash from Italian regulators, politicians and shareholders, many of who were already fed up with Profumo’s perceived haughtiness.

Ask twice

Profumo’s departure has been inevitable for some time. He just about held onto his position following the onset of the financial crisis, which led him to twice ask his shareholders to stump up cash for rights issues. The first, in October 2008, was particularly embarrassing for him after he had said such an undertaking would not be necessary.

Those capital-raising exercises led to clashes with UniCredit’s board and shareholders, with one of the Italian foundations declining to take part in a cash call. That, in turn, led to Profumo calling on the Libyans to buy a stake.

For the first 10 years of his tenure Profumo was lauded as one of the best bankers in Europe. He turned a ragbag of nine Italian banks into an empire that at one time was the 12th most valuable in the world. His strategy was simple: to consolidate in Italy and build in the growth markets of central and eastern Europe.

In the decade from 1997, he transformed UniCredit from a domestic player, with total assets of about €170 billion, to a pan-European financial powerhouse with a €1 trillion balance sheet.

Big ambitions

Profumo’s ambitions, however, proved too great. His big mistake, like many of his peers, was to believe that the global bull market would persist uninterrupted and that UniCredit could continue to grow through big, daring acquisitions that left the bank dangerously under-capitalized.

His purchase of Germany’s HVB in 2005 was ill timed, while that of local outfit Capitalia two years later was ill conceived.

True, the HVB deal also brought Profumo the much-desired central and eastern Europe assets held by its subsidiary, Bank Austria Creditanstalt, that will drive UniCredit’s growth in the long term.

But with hindsight, the acquisition marks the point at which Profumo’s luck ran out. Not only was emerging Europe one of the regions worst affected by the global financial and economic crisis, but the HVB business struggled thanks largely to difficulties faced by its markets and banking division’s exposure to structured credit.

Profumo leaves UniCredit at a time of great uncertainty for the bank. Its core tier 1 ratio – at 7.42%, according to the EU’s stress test – just about meets the new Basle III threshold but is still well below the level of many global banks. Its net profit at the end of the first half of the year was down nearly 30%, compared with 12 months earlier, while the bank’s share price has fallen from €6.7 at the beginning of 2007 to €1.8 today.

Profumo put UniCredit on the banking map, but he has failed to make it more than the sum of its parts.

Libya gets some eager international help
June 2010