Andrea Orcel is one of the executives who raises the most expectations on the banking scene in Europe. Its reputation as an aggressive business bank precedes it after a long history of mergers and acquisitions. Between the 1990s and 2000 he led a team at Merrill Lynch that advised Banco Santander on multiple acquisitions during the presidency of Emilio Botín. He also brought together more than half a dozen mid-sized banks to create Italy’s third-largest entity.
Over the next decade, that new transalpine bank, now known as UniCredit SpA, spent €65 billion buying up lenders in central and eastern Europe to become a regional colossus as well as Italy’s largest bank. Orcel then took over as CEO at UBS investment bank. Later came the short-lived signing for Banco Santander, which ended up in court and awarded him up to 43 million euros in compensation.
In April 2021, Orcel returned to UniCredit to run the bank he helped create, aiming to revitalize a troubled conglomerate. “The ultimate ambition is to be a leader in Europe,” he declared on Bloomberg Television. Investors have applauded the 60-year-old Italian’s efforts to reduce bureaucracy, close inefficient business lines and divert resources toward more profitable activities.
It has boosted UniCredit’s profits and implemented the most generous share buyback plan of any European bank, planning to distribute at least €6.5 billion by 2023 through dividends and share purchases. This has helped UniCredit’s share price almost triple, and today Orcel has €10 billion available for targeted acquisitions or payments to shareholders, in addition to what was previously promised.
Along the way, he has managed to obtain one of the highest salaries in Europe, with total remuneration approaching €10 million a year. Orcel is confident that UniCredit can continue to prosper, but the next steps will be more difficult than before. Some of its profit growth may be contributed to rising interest rates, and that momentum is likely to slow as the European Central Bank (ECB) scales back efforts to combat inflation and customers demand higher interest on their savings. . .
Russian coup
Despite his retreat to Russia, he still oversees an empire of small businesses in central and eastern Europe. That has left Orcel with an amalgamation of legacy IT systems, meaning further simplification will be more complicated than what he has managed so far. And a recession is looming in Germany, where UniCredit owns the former HypoVereinsbank.
“Europe needs banks with market capitalizations greater than 100 billion euros if we want this economic bloc to hold its own against the US or China,” says Orcel. The Italian took the reins after a period of turbulence that saw UniCredit become synonymous with the fragmentation affecting European banking: limited profitability derived from operations distributed in localized markets that make it difficult to increase efficiency.
His predecessor, Jean-Pierre Mustier, implemented a painful restructuring and adjustment plan with divestitures and capital increases with which he raised some 13 billion euros and got rid of piles of toxic debt. While that laid the foundation for growth, UniCredit lost its position as leader in Italy to Intesa Sanpaolo SpA, and after a clash with the board of directors over the strategy to follow, Mustier resigned.
“This was a bank that had lost confidence in itself, had lost external credibility,” Orcel recalls. Despite his experience in investment banking, the Unicredit CEO has yet to close a major deal, even as some outsiders push for a mega-acquisition that would propel UniCredit into the elite of global finance. In 2021 he withdrew from an agreement to acquire the Italian government’s stake in Banca Monte dei Paschi di Siena (BMPS), which just recently sold part of its shares to the market.
Orcel assures that he is looking for other purchases that could further increase the bank’s valuation. However, so far nothing has been attractive enough but he is clearly willing to entertain the idea of a major deal. Unicredito has cut nearly 10,000 jobs, about 12% of the bank’s total workforce, especially at its corporate centers in Milan and Munich, leaving some employees uneasy.
The Chuck Norris of banking
His energetic nature, known for calling subordinates in the early hours, is not everyone’s cup of tea. He is direct and demanding, and has an investment banker’s willingness to keep everything flowing until a deal is finalized, deliberately fomenting uncertainty, according to several former colleagues, who asked not to be named discussing personal matters.
But Orcel’s admirers say his determination, coupled with a willingness to do the unexpected, makes him a natural leader. While he cut back on headquarters, he invested in branches and employee training. And he has regularly visited smaller offices across Europe to meet with bosses, middle managers and entry-level employees, generating a new feeling of enthusiasm among some employees.
“He is totally committed to everything he does,” says Marina Natale, a former chief financial officer at UniCredit who has known Orcel from her time at Merrill. And clients say he has an investment bank’s relentless focus on their needs, something that isn’t always automatic in retail lending. They say it has “really broken with the past,” says Massimo Perotti, an executive at Sanlorenzo SpA, a luxury yacht manufacturer and a client of both UniCredit and Intesa. “I can see a big difference in focus. I feel like I matter.”
Orcel exhibits an alpha male personality, sometimes water skiing near London at dawn or surfing off the coast of Portugal, where he has a house. This has made him the subject of sarcastic comments, with some employees nicknamed him “Chuck”, in reference to martial arts actor Chuck Norris. Others call him Megadirettore Galattico, a reference to a 1970s Italian satire about downtrodden corporate workers and their arrogant boss.
During his time at UBS, Orcel moved from dealmaking to restructuring, as the Swiss bank was forced to restrictively downsize its investment bank following an unauthorized trading scandal and a government bailout. At the Swiss bank he also oversaw miles of job cuts, laying the groundwork for a shift to wealth management that marked a decade of stability.
His experience at the Zurich bank helped put UBS in a position to rescue its struggling neighbor, Credit Suisse, last March, and honed the skills Orcel needed to run a complex commercial bank like UniCredit. “You can work anywhere but certain principles always remain the same,” says the Italian.
Beyond job cuts and efficiency adjustments, UniCredit’s strategic direction is to use fee-generating businesses (insurance, payments and asset management) as a second driver of profits, bringing more and more products to the bank instead of subcontract them to other firms. “We need to grow in the right places, where do we want to gain market share? This is not very different from what I did at UBS. We accumulated in stocks, where we were strong, and we retreated in fixed income, where we were not,” he explains.
Europe has long suffered from the large number of lenders competing for depositors and customers. But rules on capital and liquidity management may diminish incentives for cross-border deals, a concern even for regulators who have tried, but failed, to create a true banking union. Orcel argues that its network can offer a model for achieving scale that most of its competitors only dream of. “I can do domestic acquisitions or mergers in 13 countries. What you would call cross-border, I would call domestic.”
Preparing for a mega merger
For now, however, Orcel says he is happy to focus on smaller purchases to boost the bank’s potential, with a constant eye on increasing revenue and the overall value of the company. A deal in November for the Greek government’s stake in Athens-based Alpha Bank for about 300 million euros was his first foray outside Italy since he took over nearly three years ago.
Orcel makes it clear that investors should expect this tactic to continue, as long as the right opportunities arise. He is also optimistic about the bank’s profitability growth, even with the impending slowdown in interest income. In the coming years, he says, UniCredit will continue to increase its objectives, with a goal for 2023 of 7.5 billion euros in net profits and revenues of more than 22 billion euros.
A large acquisition would be more difficult, as UniCredit’s valuation is lower than most of its relevant competitors. Orcel admits that UniCredit’s share price excludes such deals… for now. And it’s not clear whether its shareholders, usually satisfied with the compensation they are receiving, would welcome a mega-acquisition.
But if his plan to boost the bank’s valuation is successful, Orcel promises that he will be ready to make the big banking leap: “If it’s not the right terms, if it’s not the right way, it’s better not to do it. But if we were going to do it Furthermore, we are extremely confident that we can extract value from it.”
THE NAIS IS OFFICIAL EDITOR ON NAIS NEWS