UniCredit CIB’s co-heads find one and one make three

Listening to Gianfranco Bisagni and Olivier Khayat, it is hard to believe they have been joint heads of UniCredit Corporate & Investment Banking (CIB) for just six months. The way they bounce off each other resembles a true partnership, one that would take many years to establish. 

It is good they get along. The pair have taken charge of UniCredit CIB at a pivotal time for Italy’s biggest bank. In December 2016, UniCredit’s newly appointed CEO, Jean Pierre Mustier, announced a group-wide overhaul known as Transform 2019. At the end of this three-year plan he hopes to have achieved annual cost savings of €1.7bn, €4.7bn of group profits, a common equity Tier 1 ratio (CET1) above 12.5% and return on tangible equity above 9%. The plan is already in motion. Late last year the bank sold €17.7bn-worth of non-performing loans, and in January 2017 launched a fully underwritten €13bn rights issue which, at the time of writing, is due to close before March 10.

CIB’s head start

If Transform 2019 signals big changes for UniCredit, the journey for its CIB arm began a long time ago. Starting in 2011, the division has increased its focus on core assets, created a ‘senior banker’ role that provides strategic coverage for large corporate clients, and combined its global capital markets and loan syndication business. It also pioneered one of Transform 2019’s biggest operational changes; namely, the creation of a groupwide joint venture between UniCredit CIB and the corporate commercial banking (CCB) division to maximise the value of its strong CCB client base. In 2015 the CIB set up a pilot joint venture in Italy, and the following year expanded it to Germany.

“We are now taking it to the next level. There is a concrete platform, with joint ventures between CIB and CCB to convert cross-selling into a tangible business,” says Mr Khayat. “It will no longer be an option, it will be a must.” While most banks refer clients throughout their network, UniCredit’s internal joint venture will formalise this arrangement by creating joint key performance indicators, governance, incentives and targets for CIB and CCB management.

The idea has been driven by client need. For example, the joint venture will help the growing number of small companies that want to hedge their foreign exchange exposures or raise funds in the capital markets. “Over the past few years we’ve realised that the needs of clients, including the mid-market, have been changing. They need more investment banking products,” says Mr Bisagni. “Of course, the sophistication varies from country to country, but it’s clear this evolution is happening.”

UniCredit CIB clients also stand to benefit from the joint venture, particularly those who are investors, as it can connect them with yield and paper they may not have otherwise found. This has been the experience with the pilot joint venture in Italy. In 2016, UniCredit was the number one underwriter of Italian high yield, and one of the busiest broker-dealers in the secondary market. “It shows we have been able to extract bond and loan issuance from the network, which can appeal to investor demand,” says Mr Khayat. “It’s a good illustration of what you can do with a network that gives you fantastic access to smaller corporate clients as well as the institutional investors who are the majority of CIB’s clients.”

A pan-European model

In explaining Transform 2019, Mr Bisagni and Mr Khayat draw on Mr Mustier’s vision for UniCredit as a "pan-European commercial bank business model, which benefits from a fully plugged-in CIB".

The first part is already entrenched in UniCredit’s culture. The bank is headquartered in Milan, but has a big footprint in Germany, Austria and central and eastern Europe (CEE). Some 94% of group revenues are from the EU, and 52% from outside Italy. UniCredit CIB has a growing network of offices around the world (it is opening a branch in Abu Dhabi by mid-2017), but its mandate is to facilitate cash flow into and out of Europe. In 2016, for example, it helped ChemChina acquire Swiss agricultural company Syngenta, which is due to close this year.

Regarding the second part, the German and Italian joint ventures, combined with the changes initiated by UniCredit CIB in 2011, give the bank a head start. “It means [CIB] is in a privileged position where we can provide the group with a fully plugged-in toolbox of products and solutions, which will further support our simple pan-European commercial banking model and enable synergies across business lines and countries,” says Mr Khayat.

Cost goals 

This ‘fully plugged-in’ CIB drastically expands its co-chiefs’ mission. “With the establishment of the joint venture and joint pitches, our remit has now doubled,” says Mr Bisagni. In 2019, CIB plus joint CIB-CBB revenues are targeting €7bn. Another important goal relates to the source of that income.

“The biggest challenge is to increase client-driven revenues,” says Mr Khayat. “Rather than focusing on increasing the overall figures, we are focused on improving the quality and stability of the revenues.” One of CIB’s goals under the strategic plan is to increase the percentage of its customer-driven revenues from 66% in 2015 and 73% as of the third quarter of 2016, to 84% by 2019. This reflects an increase of €500m from 2016 to 2019. As UniCredit CIB runs no proprietary trading operations, its only income that is not customer-driven comes from treasury services. These revenues are among the hardest hit by low interest rates, making them less reliable than customer-driven revenues.

In 2019 CIB is required to reduce costs by €201m compared with 2015 levels. Considering the cuts required of other UniCredit businesses, this is relatively small. “CIB’s cost-income ratio today is 44.6%, thanks to our efforts to date on cost. Even if revenues are more or less static, this will fall to 41.4% in 2019,” says Mr Bisagni. “We are already best in class, and we are only going to get better and better.”

Fluid markets

From their vantage point overlooking Europe, Mr Bisagni and Mr Khayat see a growing number of clients looking to the capital markets. In line with the European Commission’s Capital Markets Union policy, more borrowers are willing to issue bonds rather than borrow from banks. What’s supporting this trend is the fact more investors are broadening their horizons. Mr Khayat gives the example of insurance companies extending loans for infrastructure projects at tenors longer than those offered by capital-constrained banks.

“Looking at the number of investors going into real assets, alternative assets and infrastructure assets, there’s clearly more fluidity between borrowers and investors in the various asset classes,” he says. “This is real capital markets. It goes beyond the pure bond environment.”

In those countries where bonds and public equity are in their infancy, UniCredit CIB is helping them to grow. “In CEE part of our role is also to educate clients on moving towards capital markets,” says Mr Bisagni. “For example, the Czech Republic is quite advanced. We are actively working with local regulators elsewhere to help develop the rules and frameworks.”

Taking charge

Supporting the development of financial markets in its key geographies is one example of UniCredit’s ‘self-help’ approach to success. Another is its focus on customer-driven revenues. The strategy is to build a bank that can best withstand economic cycles and political upheaval. Transform 2019 was announced just nine days after Italy’s December 2016 referendum on constitutional reform, and the bank will not be postponing decisions depending on the results of upcoming elections in France, the Netherlands and Italy.

On the topic of Brexit, the co-CEOs are sanguine. Only 500 or so of UniCredit CIB’s 3500 to 3600 staff are in the UK, and the bulk of its resources are in Milan, Munich and Vienna. Depending on the new UK-EU arrangement regarding financial services, some staff changes may be needed, but compared with many of its competitors, UniCredit CIB is relatively Brexit-proof.

“We see it as more of an opportunity than a threat,” says Mr Bisagni. “Some banks are refocusing, so there are clients coming to us knowing they can access all the European markets that we serve through our unique western, central and eastern European network.”

The co-CEO model may have failed at many banks, but Mr Bisagni and Mr Khayat prove that it can work. It is as much a testament to them as to UniCredit itself. Various CIB divisions are overseen by co-heads, including financing and advisory, global transaction banking and mergers and acquisitions. As Mr Khayat muses: “Working as co-heads can end in two ways: either one plus one equals one, or one plus one equals three. Within UniCredit, we are definitely making three.”