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Western EuropeNovember 24 2010

What next for UniCredit after Profumo?

The departure of UniCredit CEO Alessandro Profumo was not entirely unexpected, following rumours of his discomfort, but his sudden exit has still left many questions hanging over the future strategy of Italy's largest bank. Writer David Lane
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What next for UniCredit after Profumo?Alessandro Profumo, former CEO, UniCredit

Even though the departure of Alessandro Profumo was expected, when it arrived, it came as a shock. Late in the evening of September 21, Mr Profumo, chief executive of UniCredit, Italy's biggest bank by market capitalisation, tendered his resignation to a hurriedly convened board meeting in Milan.

There should have been no surprise, as the issues that led to Mr Profumo's leaving the bank had long been bubbling and talk of bad blood between him and fellow directors had been lunchtime gossip in the smart restaurants that bankers frequent in Italy's financial capital. Yet surprise there was.

The issues troubling UniCredit, a major player in central and eastern Europe and the second largest bank in Germany, centre on the increasing internationalisation of UniCredit under Mr Profumo's leadership, and especially on an increase in foreign ownership.

The situation came to a head during the weekend that preceded the gathering of the board on September 21. One Milan insider says: "The arrival of Libyan shareholders was the straw that broke the camel's back. Mr Profumo's departure was an event waiting to happen. If it had not taken place in September, it would have been in December or in March next year, or at some other time in the not-too-distant future."

When the UniCredit board convened, specifically to take decisions regarding the bank's management and relations between the board and the chief executive, Libya's central bank held a stake of 6.4% and Libya's investment authority a further 2.1%, while Abu Dhabi's interest in the Italian bank amounted to almost 5%.

Major institutional investors from the Far East were also considering taking stakes. This increase in foreign ownership added to the ill feeling among UniCredit's historic shareholders, particularly the philanthropic foundations that once controlled the savings banks that were merged into Credito Italiano in 1998 to form the basis of what is now UniCredit. To some of these it appeared that the chief executive had his own agenda that was at odds with theirs.

Following the board meeting, an anodyne press release related how the board and Mr Profumo had "agreed that, after 15 years, the time is right for a change of leadership". The board thanked Mr Profumo for "excellent results achieved" and he thanked the board, the shareholders and his colleagues in the group for "their longstanding support during his tenure". All very amicable on the surface, but the chief executive had reportedly found himself facing an almost unanimous board that wanted him out. Either Mr Profumo would offer his resignation or his fellow directors would put into effect at midnight the vote of no confidence that they had already agreed, it is said. His lawyers and those of the bank spent the day negotiating the terms of his departure. The leaving package worth €40m that was agreed ought to sweeten Mr Profumo's exit.

However, leaving aside the question of compensation, the inelegant manner in which Mr Profumo was axed and the failure of the board to plan for a smooth change at the top, and to have a replacement already lined up, is damaging for UniCredit and raises questions about the bank's governance. The Bank of Italy was concerned that UniCredit was without a chief executive, with its chairman, Dieter Rampl, taking on temporary executive powers. All in all it was a shoddy show, unexpected from the bank that not long ago had won plaudits from investors and financial commentators.

Rapid rise

Perhaps Mr Profumo should have gone earlier, bowing out when his star was brightest. For a decade from the mid-1990s, he was arguably the most influential banker involved in navigating the Italian banking system through a revolution of consolidation and internationalisation, and the bank from which he exercised this influence was probably the most staid of the country's large banks.

Mr Profumo was only 38 when appointed general manager of Credito Italiano in 1995, not long after the bank had been privatised. He had begun his career at a small regional bank (Banco Lariano), before moving into management consultancy, first with McKinsey and then Bain Cuneo, and into insurance, being a senior executive with RAS from 1991 to 1994. In Italy, where grey hair has often been the best qualification for top jobs, Mr Profumo's rise seemed meteoric.

Two years after becoming Credito Italiano's general manager, and three after joining it, he advanced to become the bank's chief executive and the following year, in 1998, he engineered an operation that contributed significantly to the radical change in the face of Italian banking.

The creation of UniCredito Italiano brought together Credito Italiano and five savings banks, institutions known for being proud of their local roots. Two of them were among the biggest beasts in the country's banking jungle: Cassa di Risparmio di Torino and Cassa di Risparmio di Verona, Vicenza, Belluno e Ancona. International expansion followed, first in Poland with the acquisition of Bank Pekao in 1999 and then in Croatia, the Czech Republic, Romania and Turkey in 2002. UniCredito Italiano, as the bank was then called, had meanwhile diversified into asset management with the purchase of Pioneer Investments, a US fund manager.

Even bigger deals awaited UniCredito Italiano and Mr Profumo, but already some observers were beginning to question his judgement. A quantum leap for the bank on the international stage came with the acquisition of Germany's HVB in 2005, while two years later it gobbled up Capitalia, the Rome-based bank that had taken control of the troubled Banco di Sicilia in 1999.

Strained relations

Inevitably, and despite professions of independence and loyalty to the market, in stitching together the Rome deal in May 2007 Mr Profumo found himself treading corridors of political power more complex than those of the provincial cities where UniCredit's five savings banks were based. And bringing Capitalia into UniCredit closely involved Mr Profumo with Cesare Geronzi, the elderly chairman of Capitalia and a banker well versed in Roman ways.

"In some circumstances, a political chairman can be useful to the chief executive," says Matteo Arpe. As Capitalia's chief executive for four years before the UniCredit deal, Mr Arpe may have experienced some of the drawbacks of running a bank in Italy, but he believes the challenges of doing so are the same in that country as elsewhere: the chief executive must get results, while at the same time taking care of relations with staff, trade unions, regulators and customers.

However, an Italian peculiarity concerns who deals with shareholders, the job of chairmen in other countries. Mr Arpe says that shareholders in Italy come in two types: the long-term ones, who hold about 30% of share capital but have most of the board seats, and the rest who own 70% of the capital but are poorly represented on the board. "Usually, the chairman deals with long-term shareholders, while the chief executive looks after the rest," says Mr Arpe.

Mr Arpe's name was floated as a potential successor to Mr Profumo at UniCredit. He enjoyed some success in turning Capitalia around and when Mr Geronzi sought Mr Arpe's resignation, in February 2007, the markets and trade unions representing bank staff backed the latter against the chairman. Mr Arpe was given a vote of confidence then, although, following the deal with UniCredit, he resigned later in the year and set up Sator, a financial group that includes private banking and asset management. He declines to say whether he was approached to return to UniCredit or to talk about that bank or Capitalia.

UniCredit chairman Dieter Rampl (right) introduces Federico Ghizzoni (left) as the bank's new CEO at a press conference in Milan on October 1

UniCredit chairman Dieter Rampl

UniCredit chairman Dieter Rampl (right) introduces Federico Ghizzoni (left) as the bank's new CEO at a press conference in Milan on October 1

The task ahead

A contender who was widely tipped to take over from Mr Profumo at UniCredit was Andrea Orcel, executive chairman of global banking and markets at Bank of America Merrill Lynch. Mr Orcel is well known at UniCredit, having been involved in its major acquisitions. However, one Milan insider says of him: "He's good as a deal-maker but not the right man as chief executive of UniCredit."

On September 30, the UniCredit board opted for someone else it knows well: Federico Ghizzoni, an insider who had risen through the bank's ranks to become a deputy chief executive in August this year.

Mr Ghizzoni, 55, joined the bank in its Piacenza branch in 1980 and was promoted through various managerial posts in Italy before becoming deputy head of Credito Italiano's London office in 1992. Subsequent postings took him to Singapore, Poland and Turkey. In April 2009, he became a member of UniCredit's executive management committee, responsible for central and eastern Europe. Following Mr Profumo as chief executive will be a tough task, not least because Mr Ghizzoni will have to sort out some tricky business that his predecessor left unfinished and start delivering decent profits and dividends again.

"Mr Profumo over-paid," says a Milan insider of the large deals overseen by the departed CEO, "but it was good flag-waving." Indeed, following Mr Profumo's exit, Matteo Ramenghi of UBS in Milan pointed to UniCredit's need to "focus on improving its profitability through a deep restructuring of the underperforming German operations".

Mr Ghizzoni will have to push through changes in the corporate centre, keep a steady hand over divisional restructuring and decide what should be done with UniCredit's investment banking business. And he will need to keep his feelers active and sensitive to the flows of power, not just in Italy, where politicians think they are entitled to be kept sweet and the philanthropic-foundation shareholders, who are closely tied to local politics and seem to believe their shares count more than others, but also in Germany. All quite a challenge for UniCredit's new boss.

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