Emerging European banking: UniCredit pulls its eastern businesses together
Eighteen months after buying HVB, Italy’s UniCredit is close to finalizing its disparate emerging European businesses’ integration under the parent’s banner. But what is the next step for the bank and its head of the region, Erich Hampel?
"It’s true that we have had a lot of changes over the last few years and we also had changes before the HVB and UniCredit deal, because we also had the big merger of Bank Austria Creditanstalt. But in the end I would say that our clients in the region are the clear winners of this reorganization"
It is 18 months since Italy’s UniCredit bought Germany’s HVB for €19.2 billion. While the transaction was driven by UniCredit CEO’s Alessandro Profumo’s desire to build a powerful European franchise, the consequences for Central and Eastern Europe were no less profound. Today UniCredit is by far the biggest group in the region in terms of total assets, revenues and branches. It is twice the size of its closest competitors and its network spans 17 countries. By the end of this year the various subsidiaries of UniCredit, HVB and Bank Austria Creditanstalt (BA-CA) should be integrated under the UniCredit banner. The biggest outstanding issue is in Poland, which, at the request of the local authorities, is run separately from the rest of the group’s Central and Eastern Europe franchise. The group has two banks in the country – Bank BPH and Bank Pekao. UniCredit has to sell 200 BPH branches, which should be complete by the second quarter, before it can continue with the integration. Elsewhere, UniCredit is finalizing the integration of its businesses in Bulgaria and Romania and the Czech Republic and Bosnia and Herzegovina.
Whether clients will remain loyal to a business that has undergone so many guises remains to be seen (remember Bank Austria and Creditanstalt used to be separate outfits. In 1997 Bank Austria bought Creditanstalt and then three years later HVB acquired BA-CA). One consistency is that BA-CA, which first entered the region in 1975 in Hungary, is the dominant influence within the Central and Eastern Europe structure. The CEE business excluding Poland is run out of Vienna (the Polish unit is controlled by UniCredit in Milan) and is headed by Erich Hampel, a 10-year veteran of Creditanstalt.
Hampel, whose official title is head of UniCredit’s CEE division and CEO of Bank Austria Creditanstalt, talks to Sudip Roy about the group’s strategy.
Did Andrea Moneta [head of Poland markets division and member of the BA-CA management board, who announced his departure in April] leave because he felt sidelined?
No, not at all. He’d been working first as integration officer and then within the CEE division since the merger [between UniCredit and HVB] and is now looking for a new challenge. His successor will be Federico Ghizzoni, who has worked at UniCredit for a long time. He was running Koçbank in Turkey for many years and oversaw its merger with Yapi Kredi. He’s a very experienced banker.
Is there a risk of further senior management departures?
No, I don’t think so.
But BA-CA is the dominant influence within the CEE structure. Does that mean more people from a UniCredit background will leave?
The CEE business is run out of Vienna but we have a mixed team of Austrians, Italians and CEE colleagues here. Also, Federico Ghizzoni is an Italian with a UniCredit background.
How would you describe UniCredit’s strategy in central and eastern Europe?
For us, the CEE is a real growth market and a very important market for both sides, for UniCredit and for Bank Austria Creditanstalt. We have a very longstanding presence in the region. Actually Creditanstalt, which is one part of the Austrian side, has the longest history of any western bank in CEE. We started our operations in Hungary back in 1975, so we have more than 30 years’ experience. And in Austria Creditanstalt was founded in 1855, and from that time the bank has focused on financing eastern European countries, so we have been pioneers in the region. The combination of UniCredit and Bank Austria Creditanstalt gives us a huge competitive advantage. Now we can offer our clients by far the largest network in terms of countries and in terms of branches, and this network does not consist only of small offices but of the largest local banks in their individual countries.
How many branches do you have now in the region?
We have about 3,100 offices. Just to give you some more figures, we serve 24 million customers and we have total assets in the region of €114 billion. So we are twice as big as our next competitor.
How would you define your strategy, though?
Our main strategic goal is to strengthen our competitive position in the markets where we operate, so consolidating the number one position. We want to balance revenue growth and sustainable profitability.
Is being number one or number two in each market the most important goal for you?
We are already number one in four of the countries and in six countries we are among the first five. So our goal is to be between the number one and the number five in all these markets.
In terms of total assets?
In terms of total assets and revenues. But what is also very important for us is clear leadership in customer satisfaction. So one of our main targets is to serve all our customers, both retail and corporate, with state of the art products in all of these countries.
Where does the strategic emphasis lie at the moment? Is it more on the retail side or on the corporate? And how are you trying to build the investment banking business?
It depends on the country. We are very strong in corporate business in many countries, but we also want to be a strong competitor in retail banking. This leads to branch expansion programmes in Russia, for example, or in Hungary.
One very important strategic asset is our global business lines, and investment banking is one of these global business lines. And we offer investment banking services, not only in our three home markets of Austria, Germany and Italy, but also in all the CEE countries.
Are you placing greater emphasis on your investment banking business?
We put a lot of emphasis there. We think this is important for the development of our corporate business and our goal is to build up a very strong European investment bank division and activity.
How would you characterize it today?
Today it’s already one of the largest operations in Europe and we are now focusing all these activities in Munich, so all the investment bank activity of UniCredit is transferred, or has already been transferred to Munich.
So investment banking for CEE is run out of Munich?
Munich is the headquarters for the investment banking division. However, we will have teams operating in Vienna, Milan and the other countries. As you know, Bank Austria Creditanstalt is a subsidiary of UniCredit now, and it’s the sub-holding for all our CEE activities. So in Vienna we have our CEE division and we also have our investment banking team here, but they can rely on the experience of the full group.
Surely you have suffered because the business has changed guises so many times?
It’s true that we have had a lot of changes over the last few years and we also had changes before the HVB and UniCredit deal, because we also had the big merger of Bank Austria Creditanstalt. But in the end I would say that our clients in the region are the clear winners of this reorganization, because now we can offer a wider network, we can rely on the experience of our global business lines. And this is not only in investment banking but also in leasing, in asset management, through our subsidiary Pioneer, and in the corporate business, through a new division, Global Financial Services, which offers credit finance products, cash payments and correspondent banking.
How centralized is the CEE business structure?
I would say it’s a mixture of centralized and decentralized. We do have, as I mentioned already, a central coordination in Vienna. I think this is very important. Then we have the global business lines so we can offer joint products and a very streamlined approach. Risk management is run centrally. So in that sense we are a little bit centralized, but, on the other hand, we believe in local know-how and strong local roots. So we have a good mix.
In terms of your local subsidiaries, what percentage of the management are locals and to what extent do you import western management?
If you look at our managing boards in these countries, you will find one or two expats, but the CEO is always a local. We have real local management, not only at board level but also within the first and second reporting lines.
How much further is there to go in the integration of your CEE operations following UniCredit’s acquisition of HVB?
We started in 2006 with the integration of the units of UniCredit, HVB and Bank Austria Creditanstalt. This year will be essentially one of executing these mergers. We’ve just finished the integration and merger in Slovakia, where we created the new UniCredit bank, which is the fourth-largest bank in this market. The next two countries on the list are Bulgaria and Romania. In Bulgaria, the legal merger was completed in April and the technical merger will follow at the end of June. In Romania the merger will also be finished in the first half.
And then we have still two countries where the banks will be merged this year – Czech Republic and Bosnia Herzegovina. So we are in line with our projections, we are on track, and I don’t expect major problems because we have a lot of experience in merging units in CEE. I don’t expect any surprises – the mergers will be completed this year.
After that, how many more countries will you need to integrate?
Then it’s done. What is also very important in the integration and merger process is that we started the rebranding of all our banks in CEE and this rebranding will also be finished in 2007, and our name in CEE will be UniCredit Bank, so for example the banks in the Czech Republic or in Slovakia will be named UniCredit bank.
That’s a huge risk you’re taking, isn’t it, because some of these banks, Zagrebacka banka in Croatia, for example, are very well established brands?
We undertook extensive market research in all countries and we decided then to leverage on the name UniCredit. There is one exception, and that is the bank you named – Zagrebacka banka, which is an excellent brand so in that case we will keep the name Zagrebacka banka, a member of UniCredit Group, and using UniCredit’s logo.
Won’t that mean they lose their local flavour?
I don’t think so. I should add that in some of the markets, such as Bulgaria for example, where we have a strong local bank with Bulbank, we’ve combined the two approaches, so there it will be UniCredit Bulbank. Or in Romania it will be UniCredit Tiriac Bank. Usually in all the other markets where we have smaller banks, we will rebrand as UniCredit Bank but in those markets where we have strong local banks we will combine the names.
In Poland what will BPH and Pekao be known as?
This decision has not been taken yet.
Won’t there be confusion, because in some countries you are going to be known as UniCredit Bank, in Croatia you’re going to keep Zagrebacka banka, in Bulgaria it’s going to be known as UniCredit Bulbank? There doesn’t seem to be much consistency in the branding?
In my view it is a consistent way because you have the UniCredit included in all the names, except for Zagrebacka banka, and in all countries we will have UniCredit’s logo and the same typology. I would say this is a unified approach to the market and it will give us a clear visibility throughout the region.
Why is Poland run as a separate unit?
UniCredit held several discussions with the Polish authorities in order to envisage the most suitable structure for the Polish banks directly or indirectly controlled by UniCredit. In the best interest of the group, UniCredit accepted the specific request of the banking supervision commission to place both Bank BPH and Bank Pekao directly underneath UniCredit. Additionally, the sale of the 200 BPH branches was decided. This will be finalized by the end of 2007.
Who are you selling the 200 branches to?
At the moment we are in a bidding process. The buyer will be officially announced by UniCredit in due course.
What will be the final outcome in Poland? Will Pekao and BPH still be run as separate businesses? Or will they be integrated and merged?
UniCredit is conducting a transparent, international and competitive process to select an investor that will acquire UniCredit’s shares in Bank BHP following the completion of the spin-off of 285 branches from Bank BPH that will be integrated with Bank Pekao. UniCredit would like to complete the spin-off by the second quarter of 2007 and the sale process in the second half of the year.
What is the situation with the Polish authorities?
As I said, I’m not directly involved in that process since the Polish activities are run by a separate division in Milan.
One of the criticisms of the previous set-up was that HVB mismanaged International Moscow Bank. One analyst told me it was a terrible missed opportunity. What are your plans regarding International Moscow Bank, especially now that you’ve got Aton Capital too?
First, we now own 95% of IMB, because in December 2006 we bought the remaining shareholdings of Vneshtorgbank and this makes life a little bit easier. Russia is a booming market, this is clear. Our analysis shows that the country will see 37% a year growth in loans starting from 2008, so that’s enormous growth potential. Russia is the number one country for growth not only for loans but also for deposits. It’s a very important market.
At present IMB is the eighth-largest bank in Russia. We have 2,000 people and 47 branches. The business is more corporate focused than retail. But now we are expanding in retail. Our aim is to have more than 100 branches by 2008. So we are already looking for the real estate and we are also hiring people.
It can take months to open just one branch in Russia; that’s a very ambitious target, to double your branches.
This is our target. We have made our preparations. I am convinced that we can achieve this target.
Would you look to buy another bank in Russia to give you greater scale?
At the moment we have no acquisition plans. We are always looking for good opportunities, but for now we are focusing on organic growth.
On the other hand, we made an acquisition in Russia, at the end of 2006, which was the brokerage, Aton Capital. I think that with the expansion of our retail business, combined with Aton, which will grow our corporate business, we are well positioned in Russia.
Raiffeisen’s business in Russia in particular is nationwide, not just in the big cities. Do you feel that you’re at a competitive disadvantage compared with Raiffeisen?
No, I think that with all the business we can offer and with our expansion programme, we will be an interesting partner for all our corporate clients and also to retail customers.
But even if you achieve your goal of 100 branches in Russia by 2008, that’s still half the number that Raiffeisen International has in the country.
Yes, but we also have a very strong corporate customer base already, so we will build on that. And as regards further expansion, we are looking east and are discussing opening a rep office in Belarus, which should help us in our corporate business.
What about Turkey where the two banks are Koc and Yapi Kredi? Yapi Kredi in particular has had difficulties in the past.
We successfully completed the merger of Koc and Yapi Kredi. Now we are the fourth-biggest bank in the country, with a market share of roughly 10%, with a very strong position in credit cards and in asset management. We also are very strong in leasing. It is a very successful joint venture between UniCredit and the Koc family, so it’s a 50/50 joint venture and we are also looking to expand our business by opening more branches. And we will decide on the branch expansion programme within the next few weeks.
Would you say that overall your corporate banking business is more successful than the retail banking business in CEE?
No, I would say it’s a different business. I think that you can be successful in both fields. One of our biggest advantages is that we can rely on our overall experience in global business lines and our big network. In addition, we have a lot of customers in Austria, Germany and Italy who are exporting to or opening their own production units in all these countries. So cross-border activities are very important to us.
How does your model, for instance, differ from RZB and Erste Bank?
I think Erste Bank and RZB are strong competitors. They are present in Austria as well, so we know them, but I would say that we are used to strong competition wherever we are and it’s not only these two. As we are by far the largest player on the CEE market, we rather compare ourselves with the best international banks – Citi, HSBC, RBS. These are the models we look at.
And apart from the branches of BPH, which you’re having to sell, are there any other subsidiaries that you’d be willing to sell?
If a major global bank offered you lots of money either for a substantial portfolio of your business or even just individual subsidiaries, would you be tempted?
No, we are not prepared to sell anything more – no, not at all.