WEBVTT - UniCredit CEO Andrea Orcel Talks Commerzbank Deal

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

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<v Speaker 2>Welcome back everyone. Now you to Credits chief executive wants

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<v Speaker 2>to decide by.

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<v Speaker 3>The end of the year this year whether to make.

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<v Speaker 2>A takeover offer for Commerce Bank, pending the new German

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<v Speaker 2>government's willingness to allow the deal. Now this comes as

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<v Speaker 2>the Italian lender reported record profits for the fourth quarter. Well,

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<v Speaker 2>Andre el Child, the chief executive of UniCredit, now joins

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<v Speaker 2>us and as always, thank you so much for giving

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<v Speaker 2>us a little bit of your very busy schedule.

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<v Speaker 3>Now, you had some very good earnings.

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<v Speaker 2>When you look at the levers of what rates are

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<v Speaker 2>doing and the I guess underlying nervousness in the global economy,

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<v Speaker 2>what do you have to pull on to make sure

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<v Speaker 2>that you're on target.

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<v Speaker 4>Well, friend Sine, I would say that we have waited

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<v Speaker 4>for this moment for the last four years. We crown

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<v Speaker 4>sixteen quarters of profitable girls, are well prepared and we've

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<v Speaker 4>laid the foundation for the next twelve And if you

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<v Speaker 4>look at our messaging, not only did we reach record

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<v Speaker 4>results of nine point seven billion, but we absorbed more

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<v Speaker 4>than one point three billion on extrang recharges and reinforced fervor.

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<v Speaker 4>Our provisions and our and kept impact our overlays. So

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<v Speaker 4>for us, this was the start of the next twelve

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<v Speaker 4>quarters were twelve year the twelve quarters where we would

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<v Speaker 4>be more focused on gross and we would be in

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<v Speaker 4>a position to upset the normalization of rates. So we

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<v Speaker 4>said that this moment was going to come. As we

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<v Speaker 4>are today, I think we have one of the very

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<v Speaker 4>few banks that we'll be able to keep cost flat

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<v Speaker 4>in the next three years, that will be able to

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<v Speaker 4>keep cost of risk flat in the next three years,

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<v Speaker 4>and that has built factories to such an extent that

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<v Speaker 4>our fee income will be able to upset initially most

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<v Speaker 4>increasingly more than proportionally the compression of NII coming from race.

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<v Speaker 2>So whatever happens, that will be under control. And then

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<v Speaker 2>you have all the M and A that you're possibly

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<v Speaker 2>looking at.

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<v Speaker 4>Well, you can never see whatever happens, but I think

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<v Speaker 4>we're very, very confident on what we're going to deliver.

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<v Speaker 4>I think this year is not only for US a

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<v Speaker 4>record in terms of net profit, profitability and distribution at

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<v Speaker 4>nine billion, it's also the start of an xt three

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<v Speaker 4>years where we want to first match and then increasingly

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<v Speaker 4>beat that.

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<v Speaker 2>Andre talk to me a little bit about generally I

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<v Speaker 2>mean there was a bit of a surprise that you're

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<v Speaker 2>above five percent. Can you break down the numbers in

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<v Speaker 2>terms of what you have for credit and what you're

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<v Speaker 2>holding on behalf of clients.

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<v Speaker 4>Well, let's say that the investment in generally is for us,

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<v Speaker 4>as I have said, completely financials. We have no intention

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<v Speaker 4>to buy or move strategically on generally. They have been

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<v Speaker 4>a partners of ours for a long time. We distribute

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<v Speaker 4>products in a number of markets. We might be distributing

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<v Speaker 4>some of their asset management and it was the right

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<v Speaker 4>thing to do when we built it up. It was leaked.

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<v Speaker 4>When it was leaked, we said that our client had

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<v Speaker 4>about point six percent. We were at about four point seven.

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<v Speaker 4>Now we are just over five. Honestly, I don't think

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<v Speaker 4>it's very significant.

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<v Speaker 2>I mean, there's quite a lot of people in Italy

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<v Speaker 2>that's saying it also gives you leverage to negotiate with

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<v Speaker 2>the government or the parties into what you're trying to do.

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<v Speaker 3>But with Banko BPM, is there any truth.

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<v Speaker 2>In that that it's a good investment but also you

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<v Speaker 2>know it gives you an advantage.

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<v Speaker 4>Look, it's a good investment and we obviously by having

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<v Speaker 4>mistakes we're a party to talk to. I wouldn't go

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<v Speaker 4>as far as putting it as leverage or looking at

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<v Speaker 4>a theory of the coordinated approach on BPM.

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<v Speaker 2>So it's nothing more than actually, you know, you find

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<v Speaker 2>it a good investment over timing.

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<v Speaker 4>It is a good investment that has returned well. We

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<v Speaker 4>built it over several months and we're sitting on a

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<v Speaker 4>good capital gain, which is partially a hedge. So for us,

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<v Speaker 4>it's a good thing for the bank.

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<v Speaker 2>Andrew talk to me also about commerce banks. We had

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<v Speaker 2>a lengthy conversation also and Davos. It seems that German

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<v Speaker 2>officials are doubling down on not wanting to sell you

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<v Speaker 2>the bank. Frankly, even if there's a change of government

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<v Speaker 2>come February twenty third, do you see the tone changing

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<v Speaker 2>at all.

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<v Speaker 4>Well, I don't know. From our standpoint. We were invited.

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<v Speaker 4>We did what we said we would do. Because as

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<v Speaker 4>we were invited and we crossed to the to nine percent,

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<v Speaker 4>we said we would reach twenty nine. We reached twenty nine.

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<v Speaker 4>We said we would ask for authorization from a regulator.

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<v Speaker 4>We asked for that authorization. We also said when the

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<v Speaker 4>tone changed that we would wait and not launch a

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<v Speaker 4>transaction until we had the opportunity to sit down, go

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<v Speaker 4>through the details and explain the benefit that this transaction

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<v Speaker 4>has not only for the two banks and their city holders,

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<v Speaker 4>but also for the sector Germany German industry in Europe.

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<v Speaker 4>So we're optimistic than when the emotions are off the

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<v Speaker 4>table and we can focus on what this really is

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<v Speaker 4>and what it brings, we're going to be successful in

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<v Speaker 4>having support.

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<v Speaker 2>And I know you said that you only decide, I

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<v Speaker 2>guess in a year if you got hostile and that

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<v Speaker 2>or not.

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<v Speaker 3>Is this something that's all?

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<v Speaker 4>It's just that if you look at the timeline of elections,

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<v Speaker 4>of forming a government, of having discussions on everything else,

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<v Speaker 4>you're looking at three to four quarters minimum. And therefore

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<v Speaker 4>that allows us as an investor to have an influence

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<v Speaker 4>on Commerce Bank, see what the performance really is going

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<v Speaker 4>to be and then take a decision when we have

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<v Speaker 4>all the elements.

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<v Speaker 2>We're also understand that Commerce Bank is changing their strategy

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<v Speaker 2>or adjusting their strategy this week. Maybe also to fend

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<v Speaker 2>off a possible bit for you, what would you do

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<v Speaker 2>differently if you're in charge of Commerce Bank?

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<v Speaker 4>Well, look, I think we'll see tomorrow, but we all

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<v Speaker 4>would be surprised if the plan was not optimistic. It

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<v Speaker 4>always is when someone tries to fend off attention that

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<v Speaker 4>they we are not pleased about. I think for me,

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<v Speaker 4>the important is does the plan strengthen the bank? It's

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<v Speaker 4>overly people overly focus on cost reduction. I think does

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<v Speaker 4>it strengths to the bank, which means you search for efficiency,

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<v Speaker 4>targeting your cost reduction in the areas that do not

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<v Speaker 4>add value, that are duplicative, that are overhead, etc. But

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<v Speaker 4>you then use a lot of that money, in our

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<v Speaker 4>case more than to third reinvesting the bank in technology,

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<v Speaker 4>in data, in the network, in the factories, in strengthening

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<v Speaker 4>the overall bank, and in the people. I think for us,

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<v Speaker 4>seeing plans that go into this direction, which we feel

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<v Speaker 4>is our blueprint, gives us comfort. Seeing plans that just

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<v Speaker 4>put up reduction doesn't. More importantly, specifically with respect to

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<v Speaker 4>Commerence Bank, I would say that there is concern on

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<v Speaker 4>the state of their technology, the obsolescence, the fragmentation, whether

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<v Speaker 4>or not they have ever integrated the two systems of

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<v Speaker 4>Commerceman and Dresna from the acquisition, whether they'rey investing enough

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<v Speaker 4>to modernize as opposed to just run and their corporate center.

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<v Speaker 4>Their corporate center has almost forty five percent of their assets.

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<v Speaker 4>There is very little information on what those acsets are,

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<v Speaker 4>their duration, their risk, the rates of a fixed rate

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<v Speaker 4>and not fixed straight and most importantly how that is

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<v Speaker 4>important to running the core business because I do think

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<v Speaker 4>that nowadays banks have moved away from having a large

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<v Speaker 4>corporate center with large assets that really don't have a

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<v Speaker 4>day to day impact on running the business and move

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<v Speaker 4>on realizing results on running the business day of today.

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<v Speaker 2>Andrew talk to me also about a little bit about BACOBPM,

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<v Speaker 2>So how close are you to getting more well?

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<v Speaker 4>Look, I think they are announcing their plan today, or

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<v Speaker 4>they have announced their plan today. I haven't had time

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<v Speaker 4>to go through it. My expectation is it's again going

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<v Speaker 4>to be quite optimist. I think the question in all

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<v Speaker 4>of its plans is number one, you can put a

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<v Speaker 4>good plan on the board and let's see if that

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<v Speaker 4>is the case. The second question is are you going

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<v Speaker 4>to be capable of executing it? And coming from sixty

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<v Speaker 4>quarter of RUSSOM execution at unique credit, I do think

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<v Speaker 4>execution is difficult, particularly now with the environment going against you.

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<v Speaker 4>So in the case of BPM, I guess if we're successful,

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<v Speaker 4>we'll never know. If we're not successful, we will in

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<v Speaker 4>the case of Commerce Bank, we will have three to

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<v Speaker 4>four quarter to observe whether what they put on the

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<v Speaker 4>board is actually happening or not. That's what I can

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<v Speaker 4>say for US. BPM is clear. I think you know

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<v Speaker 4>how many years it has been rumored because it's very

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<v Speaker 4>complementary to unique credit. There are almost no overlaps into

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<v Speaker 4>a network, there are no overlaps in the clients. We

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<v Speaker 4>don't see any issue of concentration and as actually we

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<v Speaker 4>can provide more support and that's where the value is.

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<v Speaker 2>So regulatory approval should not be a problem, you believe.

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<v Speaker 4>Well, you never say that, but I would say that

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<v Speaker 4>if you look at the numbers in terms of antitrust,

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<v Speaker 4>in terms of a number of these items, we were

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<v Speaker 4>very far away from having significant issues. So we are

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<v Speaker 4>quite optimistic about that with respect to regulatory approval. We're

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<v Speaker 4>two strong banks, so that should come as well.

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<v Speaker 3>Do you think Credit agriucl is behind you?

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<v Speaker 4>I mean thinks. I think, like in any transaction, you

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<v Speaker 4>need to convince the shareholders of the target to be

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<v Speaker 4>with you. We think we have had a good shot

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<v Speaker 4>at convincing Commerce Bank shareholders look at where the shop

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<v Speaker 4>price is today, and I think on BPM shareholders, we

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<v Speaker 4>need to do our work and show the value that

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<v Speaker 4>we would bring, the differential value that we would bring,

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<v Speaker 4>and why switching from BPM stock in two hours can

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<v Speaker 4>bring them even more value. I'm quite confident. We've had

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<v Speaker 4>a long dated partnership with Creatical in custody in a

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<v Speaker 4>said management in other areas. They know us, so I'm

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<v Speaker 4>quite confident eventually they will they will be positive to

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<v Speaker 4>a transaction. But it's up to them to decide.

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<v Speaker 3>Are there active talks at the moment with Creative At.

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<v Speaker 4>The moment we are not, And we need to be

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<v Speaker 4>quite careful with any interaction because we need to treat

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<v Speaker 4>all shareholders the same and petti passu and therefore that's

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<v Speaker 4>why with the offering flight, we're quite careful.

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<v Speaker 2>Do you think the government will green light the deal

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<v Speaker 2>in general? Have you had more conversations with the government.

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<v Speaker 4>Well, I do think that if you go back and

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<v Speaker 4>you look at all the statements that have been made,

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<v Speaker 4>I think they can be summarized that the government is

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<v Speaker 4>observing with attention, because there are some things that clearly

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<v Speaker 4>any government looks for, but at the same time, they

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<v Speaker 4>have been quite clear that they're letting the market function,

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<v Speaker 4>and if that is the case, I think they're doing

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<v Speaker 4>what we're supposed to do, and we'll do what we

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<v Speaker 4>are supposed to do.

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<v Speaker 2>Andre, are you pretty confident that UniCredit will be a

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<v Speaker 2>bigger group in twelve months from now?

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<v Speaker 4>Yes, I was done by yes to your question, it doubles,

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<v Speaker 4>but I do think that one way or the other,

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<v Speaker 4>the differential value that we will deliver through our main

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<v Speaker 4>plan is going to further differentiate us from the competition.

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<v Speaker 4>That should give us the credibility of the currency to

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<v Speaker 4>be able to grow through acquisition in the next in

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<v Speaker 4>the near future.

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<v Speaker 3>Andrea, thanks so much for joining us.

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<v Speaker 2>Was Andrea Orchild, the chief executive officer of UniCredit,