WEBVTT - UniCredit CEO Andrea Orcel Talks Commerzbank Takeover

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>The German Chancellor says his government is against hostile and

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<v Speaker 2>aggressive tactics in the country's banking sector. Fredrich Meers was

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<v Speaker 2>speaking to industry executives after Commerce Bank formally rejected unicredits

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<v Speaker 2>takeover bid, saying it lacks value and underminds of trust

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<v Speaker 2>with us now for an exclusive conversation. Is the chief

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<v Speaker 2>executive of UniCredit Andre Orchell Andre, thank you so much

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<v Speaker 2>for joining us. Bettina or Lop, the chief executive of

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<v Speaker 2>Commerce Bank, dismiss this as a speculative attempt to dismantle

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<v Speaker 2>commerce bank successful business model. How do you respond to

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<v Speaker 2>that and does it definitely close any room for negotiation?

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<v Speaker 3>Thank you, friend sein Well.

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<v Speaker 1>From our standpoint, we have been consistently trying to engage

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<v Speaker 1>in a meaningful dialogue to review facts as opposed to statements,

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<v Speaker 1>but we do not believe our back by facts. As

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<v Speaker 1>a shareholder, we feel very strongly that we need to

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<v Speaker 1>be ambitious. We have demonstrated at unique credit and we

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<v Speaker 1>think Commerce Bank can express a lot more value than

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<v Speaker 1>it does at the moment, both for its shareholders but

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<v Speaker 1>also for its employees and the clients it search Furthermore,

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<v Speaker 1>we do think that the current plan puts Commerce Bank

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<v Speaker 1>at risk in the medium term to face a competitive environment,

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<v Speaker 1>to face risk that would require yet another restructuring plan

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<v Speaker 1>and a difficult one, or put the entire bank at risks.

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<v Speaker 1>For that genuine concern, we have put our views forward

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<v Speaker 1>yesterday after failing to have any meaningful engagement, and as

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<v Speaker 1>you know on May sevens. On April seventh, Commerce Bank

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<v Speaker 1>was very clear that they remained on their position that

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<v Speaker 1>the bank needed to remain independent and that there was

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<v Speaker 1>no value and refuse any further engagement with us.

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<v Speaker 2>So where does that leave you? Across border bank deals

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<v Speaker 2>often proceed without management support, but rarely do they proceed

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<v Speaker 2>without government support, or at least the government saying actually,

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<v Speaker 2>this doesn't work for them. Are you prepared to move

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<v Speaker 2>forward without political support? In Germany?

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<v Speaker 3>So I hear a lot about this is a cross

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<v Speaker 3>border deal, but.

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<v Speaker 1>This is effectively mostly a merger between the second and

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<v Speaker 1>third largest bank in Germany.

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<v Speaker 3>And if you look.

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<v Speaker 1>At the views we provided yesterday, most if not all,

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<v Speaker 1>of the value comes from the merger of two separate

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<v Speaker 1>second and third banks in Germany. So it is an

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<v Speaker 1>in market deal. It is not a cross border deal.

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<v Speaker 1>Obviously the group is ban European and the group would

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<v Speaker 1>incorporate that bank into the broader group, but it is

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<v Speaker 1>an in market merger. With respect to the situation and

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<v Speaker 1>the position of everybody, we believe we've been very respectful

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<v Speaker 1>for eighteen months. We both mistake in an auction transparently.

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<v Speaker 1>We reached thirty percent. We tried to engage for eighteen months.

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<v Speaker 1>We launched an offer. We tried to engage within the

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<v Speaker 1>offer to land a joint plan in the best interest

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<v Speaker 1>of everybody. We were dismissed after two weeks with a

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<v Speaker 1>refusal to engage on any detail, and therefore we have

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<v Speaker 1>no other option but to present our views publicly, given

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<v Speaker 1>that we have an offer document and we need to

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<v Speaker 1>explain what is in that offer document. Commerce Bank was

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<v Speaker 1>well aware that if we did not present a joint plan,

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<v Speaker 1>we would have had to come back with a plan

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<v Speaker 1>from our side, and we restricted that just to our

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<v Speaker 1>views to provide a basis for further engagement. If that

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<v Speaker 1>further engagement occurs, we would welcome it. If it doesn't,

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<v Speaker 1>it is now up to the seventy percent shareholders beyond

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<v Speaker 1>us to take a view whether they want to remain

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<v Speaker 1>in Commerce Bank with the current premises, or whether they

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<v Speaker 1>want to do something else. For UniCredit as a shareholder,

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<v Speaker 1>we have a win win. If we land below control,

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<v Speaker 1>this is the scenario that will provide us with the

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<v Speaker 1>absolute best returns and in our opinion, will provide an

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<v Speaker 1>opportunity to do a deal further down the line at

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<v Speaker 1>much better terms. If instead we get a landslide and

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<v Speaker 1>we reach control, then we will implement the views that

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<v Speaker 1>we have put.

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<v Speaker 3>Forward, views that we have already successfully.

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<v Speaker 1>Implemented at HVP and across thirteen banks in UNI Credit Group,

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<v Speaker 1>and we will create value above the cost of equity.

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<v Speaker 1>So from our standpoint, we've done everything we needed to

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<v Speaker 1>do in order to be in a position to led

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<v Speaker 1>shareholders and indeed the other stakeholder of Commerce Bank make

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<v Speaker 1>a decision.

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<v Speaker 2>We reported last week that these is considering to require

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<v Speaker 2>you to consolidate Commerce Bank. So how likely is that

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<v Speaker 2>to happen If your stake rises above thirty percent but

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<v Speaker 2>stays below fifty percent, would that impact your capital buffer?

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<v Speaker 1>Look, the control is a topic that is interpreted differently

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<v Speaker 1>in Europe. As many other things, in some jurisdiction you

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<v Speaker 1>need to be above fifty plus one. This is, for example,

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<v Speaker 1>the case of Poland. In other jurisdiction you need to

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<v Speaker 1>demonstrate structural control of a shareholder meeting. This in fact

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<v Speaker 1>is the case in Germany. So for us to reach control,

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<v Speaker 1>we would need to demonstrate structural control of the AGM

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<v Speaker 1>of Commerce Bank, something that.

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<v Speaker 3>We can manage very easily.

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<v Speaker 1>Not to do so we will have really two scenarios,

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<v Speaker 1>one where we don't have control and we go back

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<v Speaker 1>to status chore, launch our share back and go back

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<v Speaker 1>to full focus on implementing our unlimited plan. You will

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<v Speaker 1>see results of that already in our main fifth results

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<v Speaker 1>and the wait to see what maps up in Commerce Bank.

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<v Speaker 1>With respect to the impacts on capital, we have been

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<v Speaker 1>very clear. A one hundred percent deal impacts about two

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<v Speaker 1>hundred business points. A fifty percent deal impacts about two

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<v Speaker 1>hundred buses eighty business points excluding the pull to part,

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<v Speaker 1>so it's eighty business points more. That affects our returns.

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<v Speaker 1>But in terms of capital position, we have enough capital

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<v Speaker 1>to absorb both.

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<v Speaker 2>What would be the trigger point so you know, once

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<v Speaker 2>you cross after crossing that thirty percent threshold, what's the

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<v Speaker 2>trigger point then launching a full takeover offer.

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<v Speaker 3>So let's be very clear.

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<v Speaker 1>In Germany, we have a ready offered for one hundred percent,

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<v Speaker 1>so differently from average jazisdictions, as we have offered to

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<v Speaker 1>buy up to one hundred percent of the capital of

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<v Speaker 1>Commerce Bank. If we cross the thirty percent in this offer,

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<v Speaker 1>we're no longer obliged to offer to do any other

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<v Speaker 1>offer and can freely buy in the open market as

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<v Speaker 1>much as we want all the way up to one

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<v Speaker 1>hundred percent without ever launching another offer. So if we

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<v Speaker 1>cross thirty percent and remain below control, it will be

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<v Speaker 1>our decision if and when we want to increase that

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<v Speaker 1>participation to reach control and to move up and for

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<v Speaker 1>the time being a signal clearly yesterday, but after trying

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<v Speaker 1>this other step to bridge the gap that exists between

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<v Speaker 1>US and Commerce Bank, i e. Launching an offer, if

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<v Speaker 1>we do not reach control, we will take a post

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<v Speaker 1>and we will focus on other topics that you have internally.

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<v Speaker 2>I mean, at this point, with what you know now,

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<v Speaker 2>how many investors from Commerce Bank do you think we'll

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<v Speaker 2>accept the offer? What's your base case or your baseline?

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<v Speaker 1>I normally don't speculate and I use facts. Probably that's

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<v Speaker 1>why I am conscious when I say some things. In

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<v Speaker 1>my opinion, it is up to that seventy percent to

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<v Speaker 1>take a view. We have shown very clearly what is

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<v Speaker 1>the financial case to tender. We have put forward our

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<v Speaker 1>views the value we can create, and there is now

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<v Speaker 1>no doubt that we can create substantial more value than

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<v Speaker 1>what is in momentum, and even more if we reach

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<v Speaker 1>a combination. The numbers are not challengeable because they emerge

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<v Speaker 1>directly from what we have already done at HVB and

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<v Speaker 1>across UNI created in last for years. So it's our blueprint.

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<v Speaker 1>We know how to implement it. We will implement it,

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<v Speaker 1>we will extract those value. We know what we're talking about,

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<v Speaker 1>So it's only about that the shareholders will need to

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<v Speaker 1>decide whether they believe waiting is better for them or

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<v Speaker 1>tandering is better for them, and I guess we will

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<v Speaker 1>not know that until the very end of the offer.

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<v Speaker 1>But as I said, for us, we have reached thirty

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<v Speaker 1>We've tried to engage for eighteen months. We launched an

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<v Speaker 1>offer in order to have an opportunity for a meaningful,

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<v Speaker 1>transparent engagement to address a lot of a topic that

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<v Speaker 1>are now being front at us that so far has failed.

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<v Speaker 1>Commerce Bank has remained on the position of day one

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<v Speaker 1>and refuses to look at any other alternatives. So shareholders

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<v Speaker 1>are now aware of our views, of the risks, of

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<v Speaker 1>the possibilities, and we're in a position to take a view,

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<v Speaker 1>and for the time being we're here. We would be

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<v Speaker 1>very glad to engage constructively. But if that is not possible,

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<v Speaker 1>the offer will run its course and we will see

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<v Speaker 1>where we are at the end of the offer.

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<v Speaker 2>Andrew Rochelle, your proposals to boost commerce bank standalone profitability

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<v Speaker 2>are around strong cuts to the bank's international operations. But

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<v Speaker 2>Commerce Bank is also an important source of trade finance

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<v Speaker 2>for a lot of the German exporting countries. So do

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<v Speaker 2>you think that could be a problem for those clients.

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<v Speaker 1>No, I don't. This is another piece of misinformation. UniCredit

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<v Speaker 1>has a trade finance business that is about one point

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<v Speaker 1>six billion. This is double the trade finance business of

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<v Speaker 1>Commerce Bank. We support that trade finance business with twenty

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<v Speaker 1>offices around the world. Our service is fully automated, we

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<v Speaker 1>use AI and we have a level of service that

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<v Speaker 1>gets recognized broadly. Commerce Bank has half the business, more

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<v Speaker 1>than one hundred offices which are a mixed and match

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<v Speaker 1>between trade finance and other activities such as trading hubs,

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<v Speaker 1>local lending to local companies that have nothing to do

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<v Speaker 1>with the core business of a German and indeed the

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<v Speaker 1>Polish bank. So for US, trade finance is a core business.

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<v Speaker 1>It is a core business from which we are recognized

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<v Speaker 1>and we keep on winning prizes every year for best

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<v Speaker 1>service in that business. So the last thing we would

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<v Speaker 1>want to do is affecting any way the middle stand

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<v Speaker 1>access to our trade finance and correspondent banking services across

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<v Speaker 1>the globe. Indeed, those services are much more efficient, much

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<v Speaker 1>more effective, and better services than the one of banks

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<v Speaker 1>that use the old model that we believe Commerce Bank uses.

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<v Speaker 2>You're predicting seven thousand job cuts at Commerce Bank if

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<v Speaker 2>those plans come to fruition. Is that what unions? So

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<v Speaker 2>the governments are worried about this deal.

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<v Speaker 1>Well, on the job cuts, I would say that the

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<v Speaker 1>numbers that were again flying around talked about fifteen thousand,

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<v Speaker 1>So number one is less than half Number two. Commerce

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<v Speaker 1>Bank itself has already committed to cut four thousand jobs,

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<v Speaker 1>all in Germany, hiring internationally and redeploying head count outside

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<v Speaker 1>of Germany. So put that in context with our seven thousand,

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<v Speaker 1>which would be done mostly the first five thousands or

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<v Speaker 1>so over a period of three to four years. The

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<v Speaker 1>remaining just in the combination. You're talking four or five

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<v Speaker 1>six years out. Very significant attrition given the period of age,

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<v Speaker 1>and there is significant reinvestment, and a number of those

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<v Speaker 1>reductions are done in areas that are very bureauctic and

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<v Speaker 1>overpaid in our opinion, and that need addressing at the

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<v Speaker 1>center of function that Commerce Bank has. So are their

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<v Speaker 1>job cuts, yes, they are. I don't think they're meaningfully

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<v Speaker 1>different from what Commerce Bank has proposed. And those job

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<v Speaker 1>cuts are not done to go and expand internationally and

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<v Speaker 1>lend in other countries, but they are done to strengthen

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<v Speaker 1>the business in Germany by investing more in technology in

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<v Speaker 1>AI and redesigning the entire operating machine. The very big

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<v Speaker 1>difference between Momentum and Unlocked is that Momentum at the

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<v Speaker 1>end of the plan delivers a bank that, after they

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<v Speaker 1>have done those cuts, is still lagging the other peers

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<v Speaker 1>in Germany and in Europe. Unlocked at the end of

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<v Speaker 1>the plan delivers a bank that is a leader versus

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<v Speaker 1>the other German competitors and Europe. So Unlocked is viable

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<v Speaker 1>momentum will just require yet another restructuring plan to address

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<v Speaker 1>the gap that would be accumulated again in the next

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<v Speaker 1>three years, to visa viva.

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<v Speaker 2>Sector Andre, Do you think there's a chance actually that

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<v Speaker 2>the government, you know, the German government comes out and

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<v Speaker 2>just blocks it like it to this government did with

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<v Speaker 2>Manco BPM.

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<v Speaker 1>I cannot speculate on what the government will or will

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<v Speaker 1>not do. I respect their position. I would have hoped

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<v Speaker 1>we could have had engagement to explain every topic and

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<v Speaker 1>every step in detail and argue your case, something that

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<v Speaker 1>we have unable to do.

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<v Speaker 3>But it is very decision to make.

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<v Speaker 2>You know what you're thinking about acquisitions in Italy. Are

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<v Speaker 2>you still evaluating something, for example with Monte Pasci.

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<v Speaker 1>Look, I think our name comes very often in acquisition,

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<v Speaker 1>probably for two reasons, one because of my past job

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<v Speaker 1>and two because uniqu credit being present in thirteen countries

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<v Speaker 1>and having turned around in the way we have turned around,

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<v Speaker 1>there is a lot of speculation that we may do

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<v Speaker 1>a lot of things. So, as I said, and I

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<v Speaker 1>continue to say, we are very committed and we have

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<v Speaker 1>demonstrated it again and again and again to our organic growth.

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<v Speaker 1>Initially we've unlocked now we've Unlimited. Those two plans have

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<v Speaker 1>delivered a lot more value, and then Unlimited will deliver

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<v Speaker 1>a lot more value than any acquisition. That said, I

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<v Speaker 1>think it is the duty of the leadership of Unique

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<v Speaker 1>Credit to look at option.

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<v Speaker 3>In Italy.

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<v Speaker 1>We have a nine point nine percent market share of

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<v Speaker 1>the market. The market is fragmented, so there is basis

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<v Speaker 1>to look at option to strengthen our market share. There

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<v Speaker 1>is basis, but we need to find opportunities that work,

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<v Speaker 1>and we need to find opportunities that fulfill our financial

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<v Speaker 1>We're very, very disciplined on the returns to be had

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<v Speaker 1>and given the success of Unlocked and what I will

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<v Speaker 1>demonstrate the success of Unlimited in the next twenty quarters,

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<v Speaker 1>we do not need to make acquisition. We will do

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<v Speaker 1>them only if they ad incremental value.

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<v Speaker 2>Andrew Archill, thank you so much as ever for giving

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<v Speaker 2>us a little bit of time in your very busy squasule.

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<v Speaker 2>That was the UniCredit Chief executive