Bloomberg Audio Studios, Podcasts, radio News. I'll tak you back to DeVos. Francine has just sat down at the Bloomberg House in DeVos. She is sitting next to Unicredits CEO Andrea Orchell. Let's take a listen to their conversation.
You're, of course the chief executive of Unicredits, and you're actually the busiest banker at the moment in Europe, trying to buy Italian Bank, trying to buy Commerce Bank. We'll get to that in a moment. But actually there's quite a lot of hope and expectations in the US that Donald Trump deregulates banks. How problematic is that for the European banking system, Well.
It is problematic.
I think there needs to be the right balance between regulation and ability to execute, our ability to operate. I think sometimes we lose sight of the fact that the business of bank is to manage risk.
To manage risk well, but to manage risk.
If we look at our clients and we say, well, we would like to help you, but we are taking risks zero and we are supporting you, You're going to look at us and say, well, hang on a second, what's your value added?
So I think The management.
Of risk is at the core of banks, and banks need to have the right controls, the right regulation, but need to be able to take that risk. So too much theregulation is not a good idea. Too much regulation is or too little regulation is also not a good idea.
You need to find the right balance. At the moment.
The expectation is that the US will be well ahead of Europe in terms of being less regulated, and given that US banks do operate in Europe, that will put us at a competitive disadvantage.
Do you expect regulation We've seen that in the UK last week, to expect European regulation to just take a pause and wait to see what the US does well.
For the time being, there is a lot of discussion about where regulation is going to go, But for the time being, the indications are that Europe will maintain its course on regulation and will maintain the position where it is. And I think to a certain extent, if this is a steady state, this is something that we can live with and that is correct. If it continues to tighten, then it becomes a difficulty.
How worried are you about competitiveness in Europe? What does your clients tell you?
Look I think more generally, if you look at Europe, Europe needs gross. I think we need to rethink what is the vision for Europe, what is the strategy for Europe? And we need gross. Without gross, we're staying behind. We already behind, is going to get even worse. And in a way, if you look at gross or industrial growth as a car, the banks and capital market unions are the gasoline of that car. We cannot finance that gross transformation, that economic policy that we want without that feed.
So if banks are not strong.
Enough, not big enough, or or overly stringently regulated, and we don't have a capital market union, we may have all the plans in this world, but we're not going to be able to finance them at the same time. And you see it in a number of economies in Europe. Banks from other economic blocks are coming in.
And when we.
Talk about competition in countries like Germany, we talk mostly about American banks and maybe one or two European banks that have an approach to Germany in a certain way, But the real competitors we fear are American banks.
I know you have skin in the game, but why is it so difficult to have a capital markets union?
I think that like everything in Europe, you know, I think we celebrate our differences, and I think this is important. And being Italian, I think when I go through Italy, I need to explain to people that what I get in Milan is different from what I get in Rome, from when I get in Palermo.
And they all have different.
Views and they're very happy to tell you why they're better. So it happens in every country, it happens across Europe, and I think that's one of our strengths. But I think our biggest weakness is we're not capable to say, well, these five things we're going to put to common denominator because we can benefit more from doing it together than separately.
And therefore you have all the regulation all these schemes, but they are always flexibility for each single state to implement them or not, and it always ends up being that on one or the other, a part of the European members implement and a part did not, and therefore we continue to have fragmentation and inability to.
Build industries that go across Europe.
So someone who I know is watching on air asked me yesterday what Andrew Rochelle is like and I just said, he's bold. You're surprised investors really shocked governments by buying a big stake in Commerce Bank and offering to buy Bunko BPM in Italy. What do you want to achieve and how fast do you want to achieve it?
Well, I think it's a little bit a connecting of opportunity with interest if you look at UNI Credit. Actually, I was being criticized for three and a half years for not engaging in Animine because I thought firmly that the bank required setting back on the right tone, unlocking releasing trap potential, and we always said that at the right time, at the right terms, we would look at it.
If you look at the key markets for US where we can do an.
In market merger, strengthen the group and move the dial very significantly, you get Italy, you get.
Germany and not really in.
Market, but for our CEE you get Poland. And it just happened that the opportunity to do something in those three market came relatively at the same time. It also happened that we are exiting three years of transformation. We feel we are more ready than ever to do the
next three years with even greater success. But at the same time, we have a team that has shown they are capable and that is capable of integrating and capable of accelerating what we can do alone with this acquisition, and if we do them, great, and if we don't, we will have tried.
At least your moves have irritated governments in Germany and it did you predict the backlash?
No, especially in Germany.
I think there has been a lot of debate on that, but honestly, we struggle.
I struggle to see what the debate is based on.
I think beyond the fact that HVB and Commerce Bank have been talking to each other in bus direction for over twenty years, because it's a it's one of those deals that you always want to do. We can it makes a ton of sense, but for some reason it's always derailed. In the last two and a half, we probably have had and I probably have had meetings with both leadership of the government and leadership of the Commerce Bank.
In the tents, we both a four and a half percent stake in anticipation that the government would sell Verse sixteen and a half, and we wanted to be at a level of consolidation. We clearly we were invited actually by the government as the only strategic to buy their stake the first seal down at four and a half. We did that in a transparent process. Actually we were asked to we were the best bid, and we were asked to bid again at a premium to what we had offered in order to get the entire stake. We
agreed on a press release. During that process, we interacted again with a leadership of Commerce Bank, warning them but we were going to participate. Commerce Bank was the first call we had in the morning to debrief from where we were and from there it moved to surprise, well imagine hours, and then it moved to hostility or to opaqueness. Well, from the first day when we both and we mean Finance was well aware, we said we would ask authorization to go to twenty nine to nine.
We did and we executed that. What we changed was because out of respect of both.
The government and the Commerce Bank, we said, well, given that the emotions are what they are, let's wait for elections, Let's wait for things to come down, and then let's have an opportunity to instead of talk about perceptions, talk about facts, talk about figures, talk about the merit of the deal, the red lines and in front one in front of the other, tried.
To see if there is a base to move forward or not.
At the end of a dafferen scene for us, I would say it's a statement for Germany. We're trying to invest in excess of twenty billion into Germany at this point, and I think.
That says it all.
So when people say you're untrustworthy or not transparent.
Enough, well, you know, there were other things that I was told in the past and now have been superseded by facts and over time. I really on this time. While I could even say that my own government could have been surprised at our move I cannot say that German government and Commerce Bank have a base for these allegations.
I mean Jemuary twenty third is when there's the German elections. Do you expect something to change for you?
Then, well, I don't know what I think will change or I hope will change. Is an opportunity to invest instead of focusing on perception of what we might do, you know, criticisms based on many times bias and other expectation of the past. That we can sit around the table and you know, compare notes. I do think that the transaction, if we go back on that, it's excellent
for Germany. Over the last four years I chaired the supervisory board of HBB, and I got to a great conviction that Germany has first of all, that Europe does not exist without Germany, and secondly that there was a great opportunity. So the two banks are very complementary. There is a lot of value to be created, and not only for shareholders, I think for clients where we could compete in a better way versus both local and foreign competitors,
and for the people of both banks. So in our book, sitting down and saying what is it exactly.
That is wrong with this deal, and what is.
It exactly you do not like, and how can we eliminate that from the table and get to an agreement that process that we haven't had an opportunity to go through, not with the government and not with Commerce Bank. And it's not for not asking. I think I either met or wrote a letter to every party leader in Germany explaining where we are. And I do realize that in the middle of election it's not the right time. And I also do realize that until this is settled, it
is also different difficult from commerce bank to engage. The biggest thing that I have that I hope to get.
From election is an ability to interact. What can you tell us about job losses?
I mean, I know this is one of the worries in Germany and we're expecting also an update from cost February.
There is a lot of expectation and a lot of allegation on what would occur from a combination that has not been offered yet because we haven't sat down. So but if you look at uniqu credit in the last three years, we did acceed quite a few people. I don't think you have ever read in the press, not in Italy, not in Germany, not in any of our markets. But we did that in a way that the worker's Counsel of the trade unions were against. That means we
found a way that was shared to reach it. I think everybody focused on job losses, but we start before at the origin. What is the vision for this bank, What is the strategy for this bank? What are we trying to achieve? Efficiencies in the industry are a matter
that needs to occur. But at the same time, if I take unique credit in the last three years, we probably reduce costs by one and a half billion, but we reinvested in the business through upgrade or our physical network, digital data, our factories, hiring new people, training new people,
our university a billion two. So it's not only about we made efficiencies, but we actually reinvested the large majority of pose efficiency into the banks, which then brings us to number one, having the people of unique credit behind it because they say, well, I understand what we're trying to do and where the money that we're saving is going. And secondly, it brings us to being in a really strong position now to address the next three years that are going to be quite challenging.
So we sometimes play this game in the newsroom of whose job would you not want to have right now? And I think it'd be your M and a advisor. Are you ready to walk away from the deal?
Yes, of course.
I mean we implicitly walked away from deals in the past several times. So we walked away from Montelebaski. There was a leak last time we tried to approach BPM, and we walked away. Second time, there was another leak that pretended obviously it was not very advanced that we were going to do something with Commerceman.
We walked away from that as well.
So I do think that maybe for us, or for me in particular, there was the never ending story does mena at value or does amina.
Not at value?
And I think MENA adds value if it's done at the right terms, at the right time, in the right way.
Otherwise stay away from it.
For us, we have an exciting proposition at Unique Credit. I think for us demonstrating what we can do in the next three years, demonstrating that not only we can continue to deliver at the level we were delivering where people say European banks are over earnings, but actually add a billion on top to that and improve the profitability for that.
That is the exciting venture.
If on top of that, given that we have confidence in what we can do, we can do acquisition at the right terms, integrate them and further accelerate what the potential we have not only for us but also for the targets great And if not, I honestly think that if I take the next three to five years and I compare the prospects at uniqu Credit has given the transformation and the investment with those of the average bank
in Europe. We have no pressure in wanting to do anything because we will have great results.
Okay, let's talk about Banko BPM. A lot of investors say, your offers too low, can you increase?
Well, let's put it this way. Let's put it this way.
It's like starting with job losses as opposed to the outcome of figs. I would say the following our offer on BPM is at a depending how you calculate fifteen to twenty percent premium to where the bank was trading a month prior, what you would call an m and a undisturbed price. What happened in that month is that they announced a bid for anima where the market reacted positively on the transaction and assumed that it could be done at that price in full.
Well. Already yesterday there were rumors.
That they may not get the datish compromise, and if they don't, that transaction may not occur or may not occur in full. If that is the case, on the day jumped ten percent and over a period fifteen percent. Should I pay a premium over that? The second thing is straight after that, there were a lot of speculation of a merger with Monte Pascualiena, and again the share price took another five percent, So again that merger is not occurring for the moment, and should I pay a
premium on that? Again, so if you look at undisturbed price, we have fifteen twenty percent. Is that we think it's a fair starting point, especially because when you look at they're multiple versus ours and our resilience versus ours. We think we are significantly undervalued and they are probably fairly or overvalued. We'll see, we'll see. In any case, it's premature. I think let's see how banks perform in Q one, in Q two, let's see if anima is done or not.
Let's see a number of other topic. But at the moment, we stand firm on our offer and we think it's appropriate.
Okay, the million dollar Are you meeting with the Credit agricoll CEO and Davos because there's so I know a lot of you actually follow banks very closely, but Credit AGREU CALL controls fifteen percent of Bank of BPM and there's also distribution agreement right through its anc Mantra mundi, so you really need them on board.
I think, Look, there's a lot of speculation on Kariaka. I would say the following very key partners of ours. We we account for probably seventy or eighty percent of our investment and go through a MUNDI In Italy we have a contract with them. The contract ends in twenty seven. We also do custom deal with them in Germany we work with them. Between our factories and their investment bank are quite tight. We do a number of things together, so we didn't.
Need to wait for.
BPM to talk to each other. There have been continuous dialogue in the last three years. I think we have a lot of point of contacts and a lot of common interest. If you ask me whether I am optimistic on finding a solution that is respectful of the part condisho for all the shareholders of BPM, that works for both banks, I'm optimistic, but at this point in time it's premature.
Are you optimistic about the Italian government getting.
Behind the deal?
Well, I think, as you know, every time, and we've had this discussion over the years. Every time you touch a bank, everybody has an opinion, and I do think that you know, it is fair enough that they want to determine the level of competition.
What will happen next? Because we would become.
Quite a large institution in Italy. We would have fifteen percent of the market. Actually because of our overall size. People forget that in Italy we only have a nine percent market share in loans and deposit, So we would go to fifteen. We would be a strong number two twin TASA. But I think it's fair enough that we want to make sure that competition remain, you know, commitment
to the Italian middle stunt remains. You know, branches are kept open in the areas of Italy that are more remote, and we're well, but these are all things that it's not a concession. We're determined to do and that's why we're buying the bank so very again, we take the course of the so called golden power as an opportunity to sit down and it's quite structed and to highlight all of the elements, and I'm actually quite optimistic that we will convince it.
But golden power is basically a veto which they're trying to play. If they put that, do you walk away that deal?
Well, you know, I think the golden power is if they were to apply it, that is not just I have an I have I can decide whether to play or not to play. But I do think honestly that if we put aside all the speculation of the press, the process is a lot more technical and constructive. And I would say for now I can only say fair when people make it to be.
If your legacy is not buying these you know banks, do you worry if you fail at buying this?
Or is there I think one of the biggest I think one of the biggest problems in M and A is that not buying equal failure. And I don't know, I don't see it like that. I think is buying at the right ters mean success. Not buying at the wrong terms mean less.
A success, but still success.
Buying at the wrong terms means deep in success. So for me, if the walk away is because the terms are not there, or because we're not accepted, or because shareholders decide not to move, fine, as I said, I think, I'm just We're already touring all the banks of a group with them three at the moment, and the view that we have on our opportunity this year is quite optimistic.
As I said yesterday to our townhold in Germany, it's the first time that I but in January I see smiles when I go around, and you never know fits because they just ended the holidays, or because they're very optimistic about what we're doing. But going back on that, I think, to quote Warren Buffett, it is when the tide goes down that you see who's wearing trunks. And I think we have been talking about higher rates, low cost of risk, and inflation, and in the next three
years it goes exactly in the opposite way. Lower rates, high cost of risk, higher inflation. This is the tide going down. I think every bank is stelling youth I have it all figured out.
I don't think so.
I think there will be a big divergence between banks that have it figured out, have transformed, have lines of defense, have levers to upset and grow, and banks who have instead spent the last three or four years squeezing the lemon and taking it the most we could do. And now they're going to start saying, oh, hang on, how do I keep up? And I think this is for us an opportunity to show the degree of the transformation
and show what is there. In a way, it's almost better if you don't do acquisition, because nobody can say, oh, well, yeah, the group because they did acquisition for us and for the team. If we can deliver that plan over the next three to four years, that's exciting.
On the unicordit performance, how do you mitigate lower interest rates?
Well, look, I think we look at it this way.
First of all, I would say we're now united, we're strong, we have very high capital, we have very high provisions. This is a strong bank, but it's highly unified, highly empowered. I'm really excited about what we can do. The second thing is I don't think any other bank kept overlays, which are fundamentally a provision to be used anti cyclically when the cost of risk goes up of one point seven billion.
So if custom risk goes up in Europe, we're fine.
If custom risk doesn't go up in Europe, we will release one point seven billion into our results. Secondly, we have been told over you distributed a lot of equity out and a lot of distribution.
We did.
We distributed almost more than twenty five billion over three and a half years, but we also generated six and a half billion of additional capital. So we have excess capital of six and a half billion. No other bank has that much. And that's two three Another buffer visa what I would call lines of defense.
Every year.
In the last three and a half years we have worked on transforming the bank, and we've taxed our P and L by taking integration cost about a billion a year, but nine the next three years we don't need to take them. And so when you look at that visa
are the lines of defense. But what I think people missed because we've rates up everything floated, is not only the degree of our transformation, but if you look at Unique Credit, we have an exceptional geographic mix with you know, forty percent in Italy, thirty five percent if I take in Germany and Austria together which have a certain anchoring, and twenty five percent in ce And in terms of client everybody goes around and you will now understand the strategy.
We have about sixty sixty five percent of our clients are either SEME, affluent or private, and we're trying to develop that.
So we worked very hard to leverage.
On these strengths, on being as effective and efficient as we can on these strengths, and last year, instead of spending the usual six months on budgeting, we spend three and then we spend the other three on how we're going to make it happen. Does everybody down the organization knows how to execute and we're confident.
And in terms of capital distribution, you said it won't be touched no matter what happens with acquisitions.
I think it's a bit more of a glimpse. I think it depends. But what does it depends?
First of all, we've increased again the dividend payout to fifty percent on neck income. We started with thirty five. Now we are at fifty. That will not be touched. As they say in the industry, visu is sacrosanct. Then we have the share baybacks, which are composed of orninary
distribution and excess capital returns. The entire excess capital we have committed to go back to thirteen percent and to distribute it back by twenty seven, so you're looking at twenty five, twenty six, twenty seven, six and a half billion need to go back in the pockets of shareholders.
In addition to the share by back that is ordinary.
That allows us to say with confidence that not only the dividend will be higher than what it was in the last few years, the dividend per share will be higher, much higher, but also, the total distribution that this year we have guided to eight and a half billion will be much higher than this year in the next three of course, if we do M and A. We have also said we will strive to keep the dividend per share unchanged to protect our shareholders, but part of that
share by back will instead of going to buy our shares, to buy the shares of the target.
Okay, final question in twenty twenty four was a world when frankly, just following the news from UNI Credit, think by the end of this year you'll you'll be much bigger through an acquisition.
I am optimistic that we will.
Actually more than fifty to fifty, more than fifty to fifty.
We have to leave it here, but I have so many more questions.
Commerce Bank or.
The other one I don't know will see Okay, good sport and enjoying ur chill.
Thank you so much for joining us.
Thank you very much. Thanks you M