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Western EuropeMarch 3 2010

Alessandro Profumo

UniCredit, the Italian bank with a significant presence in Europe, is back on track following a €4bn rights issue to fund loan demand in eastern Europe. Its chief executive explains how the company's diversified business model is now giving it an advantage over its competitors. Writer Brian Caplen
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Alessandro Profumo

UniCredit is preparing for the upturn. Well-positioned in eastern Europe, a rights issue under its belt and with a fresh approach to customer relationships, the bank is looking to get back on track with its diversified business model.

Chief executive Alessandro Profumo, in an interview conducted at January's annual meeting of the World Economic Forum in Davos, says: "In 2010 we see an improvement [in performance] over 2009 which has, in fact, already been good in the sense that the results are much better than we were expecting in March of last year.

"This crisis has been different from previous ones because it has been completely synchronised and so the more you were diversified the more you were hit. This is not in the theory of financial markets.

"Today, fortunately, diversification is starting to pay again. Central and eastern Europe is and remains a key market for us in terms of growth, in terms of profitability, as well as in terms of risk."

Eastern presence

UniCredit is present in most central and eastern European countries. It has commanding positions - in the top five by market share - in Poland, the Czech Republic, Slovakia, Slovenia, Croatia, Bulgaria, Bosnia-Herzegovina and Ukraine.

Part of the rationale behind the €4bn rights issue was to fund loan demand from the region. "The regulatory framework is changing and so for us it is better to be on the safe side in terms of capital base. On top of that we have new loan demand coming from central and eastern Europe and we want to be ready to take this opportunity, especially as many of our competitors are not in the strongest position. It's a good opportunity for us to increase our market share.

"On top of that, last March we said we would ask for €4bn of government bonds [assistance from the Italian state which in the end UniCredit did not take] and some of the rating agencies had already applied this in their calculations. To then go out and say 'we don't take the government bonds and we don't do anything on the capital side', would be problematic. For all these reasons we decided to go to the market.

"I prefer not to give a target for a capital ratio because the world is moving continuously. It's better to have a defined regulatory set up [Basel ratios] than to say where we want to be. In theory you must be at the highest level at the peak of the cycle and then reduce in the negative part of the cycle while at the moment the industry is doing exactly the opposite, creating big issues in terms of procyclicality. This is another topic on which the regulators have to work quite a lot."

As a former McKinsey consultant, Mr Profumo takes a sceptical approach to ratios. He says of the cost-to-income measure - a key banking ratio: "I don't like the cost-income ratio because you can create a very good cost-income ratio with leverage. It's important to have the right cost base for particular segments of the market."

Customer care

On the revenue side, UniCredit is trying to respond to the post-crisis demands of customers. "The world is different. Our customers are looking for different things - more simple products, more transparency, more stability of the staff in the branches.

"We continuously measure customer satisfaction and the stability of relationships with staff is the number one concern... All of us banks say we want to be customer-centric. In reality, most banks are not building to serve the customer according to the customers' needs."

Mr Profumo says that surveys show that the three most important factors for customers are stability of the staff, speed in responding to credit requests and speed in dealing with complaints. Price comes lower down the list.

"A small business customer to whom we say no [to credit] in seven days is more happy than a customer to whom we say yes in 14 days. You have to be capable to manage these expectations."

UniCredit market share in Central and Eastern Europe

UniCredit market share in Central and Eastern Europe

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Read more about:  Western Europe , Italy