Tenacious Orcel will need to draw on diplomatic skills at UniCredit

Andrea Orcel’s subordinates at UBS would breathe a sigh of relief at 6.20am on days when they knew their boss was taking the first flight from Heathrow to continental Europe to visit clients. It meant a two-hour break for them from his incessant calls.

The hard-charging Italian, who formerly led the Swiss lender’s investment bank, would rise at 5am, start the day with a high-intensity workout, then hit the phones at 6am. He typically expected instant responses to his often barked demands.

Staff at UniCredit, Italy’s second-biggest bank by revenues, will soon get a taste of Orcel’s management style. He is set to take over as chief executive at the group’s AGM on Thursday. Orcel has told allies it is his “dream job”, 23 years after orchestrating the $25bn deal that formed the lender when he worked as an M&A banker at Merrill Lynch.

It will be a return to the centre stage of European banking for Orcel, who quit UBS in 2018 to take on the top job at Santander. The move was scuppered when he fell out spectacularly with Ana Botín, the Spanish bank’s chair, over pay and profile.

Since missing out on the Santander position, Orcel has taken up kick-boxing and spent more time with his family. But his time away from the front line has mellowed Europe’s best-known investment banker, according to a former colleague who knows him well. “He’s a changed man — a little bit calmer and more considered but still very driven,” this person said.

“He learnt quite a few lessons about diplomacy from his time at UBS. I don’t think he’s going to go in there like a charging bull in a China shop — even though he is a Taurus.”

Orcel will need diplomacy in spades when he begins his new job. He faces several immediate challenges. He will quickly have to decide what role UniCredit plays in the consolidation of Italy’s fragmented banking market, while staying on good terms with his fractious and highly politicised new board. This is something his predecessor, Jean Pierre Mustier, failed to do. It ultimately cost him the job.

© Miguel Medina/AFP via Getty

For the first time, both the Milanese bank’s top positions will be held by two Romans, but Orcel and UniCredit’s incoming chair Pier Carlo Padoan don’t know each other well. Padoan’s first choice for chief executive was Tidjane Thiam, the former boss of Credit Suisse, according to people involved in the selection process. However, the president of UniCredit’s appointments committee, Stefano Micossi, favoured Orcel and fell out with Padoan in the process. Micossi has not been reappointed to the board.

Orcel, who declined to be interviewed for this article, may also have to adapt his management style to an institution that’s a stranger to the 18-hour workday culture he espouses. But his first task will be negotiating more personal matters: two brewing showdowns over his own pay.

Pay revolt

Orcel’s confirmation as chief executive of UniCredit on Thursday looks set to be overshadowed by a mini-shareholder revolt over his pay. Influential governance advisers ISS and Glass Lewis have urged investors to vote against his potential €7.5m package.

Under the terms, the 57-year-old will earn a salary of €2.5m and be awarded as much as €5m in company stock in 2021, regardless of his or the bank’s performance. The total annual pay of €7.5m would make him Italy’s highest-paid banker and among the most generously rewarded of his European peers.

Orcel’s package is markedly higher than that of Mustier, who stepped down in February. The Frenchman reduced his fixed pay by 40 per cent to €1.2m when he joined in 2016. Last year, he also voluntarily cut his salary by a quarter in response to the pandemic and gave up €2.4m in bonuses. Mustier’s total pay package for 2020 was €911,000.

Orcel’s pay is among the highest in European banking; Euros earned per €1m of assets at bank and total pay

“UniCredit’s generosity towards its new CEO clashes with the current global context, European Central Bank recommendation on executive compensation, and the sobriety of the Mustier era,” ISS said in its report recommending shareholders vote against the remuneration policy.

Meanwhile, Orcel’s €112m lawsuit against Santander over the lender’s decision to withdraw his job offer has still not concluded. A public hearing into the dispute has been delayed several times, most recently when the judge had to quarantine after being in contact with someone with Covid-19.

The next date for the hearing in Madrid — where Orcel and Botín are expected to appear in person — is May 19. Talks between lawyers representing both sides have failed to get close to a settlement.

The dispute has alarmed some UniCredit shareholders and banking regulators, who are wary of an unedifying public confrontation between two of Europe’s biggest banks over multimillion euro pay deals.

Dealmaking spree?

When UniCredit’s board announced it had unanimously chosen Orcel as chief in January, the Italian banking industry anticipated the acclaimed M&A specialist would embark on a dealmaking spree. Indeed, Orcel and each of the other candidates for the role were required to be open to acquisitions as part of the interview process, according to people involved in it.

UniCredit has long been linked with a takeover of Monte dei Paschi di Siena, the world’s oldest bank that has been state owned since a 2016 bailout. Italian politicians are seeking to return the bank to the private sector and UniCredit is the obvious choice to take it on.

Line chart of €bn showing UniCredit's revenues head in the opposite direction to Intesa's

“Monte dei Paschi is a priority for UniCredit’s chair [Padoan] and Italy,” said one banker who was sounded out by headhunters Spencer Stuart for the role of UniCredit chief. “There isn’t another financial institution that could take it over.”

Another banker, who has known Orcel for more than three decades, said an MPS deal would represent a “clean up trade” for him — Orcel advised MPS to buy Santander’s Antonveneta business for €9bn in 2007, on the eve of the financial crisis, a deal that many blame for the Tuscan lender’s continued woes.

© Giuseppe Cacace/AFP via Getty

In Milanese banking circles, talk of a potential UniCredit takeover of Italian investment bank Mediobanca has increased in recent weeks.

But several bankers close to Mediobanca and Orcel dismissed the rumours as “fantasy talk” that gained traction only because regulators were pushing for consolidation.

“If Orcel wants to strengthen UniCredit’s investment banking unit, he can poach bankers from UBS, he doesn’t really need to buy Mediobanca,” said one. “The problem for UniCredit is the commercial bank, so taking a small domestic investment bank on board isn’t really going to solve the problem.”

UniCredit trades at a price to book value of 0.32, half that of its domestic competitor Intesa Sanpaolo. While Orcel will be under pressure from shareholders to cut costs and improve sagging profits, any drastic action will put him in confrontation with Italy’s powerful banking unions.

Line chart of Price to book value (x) showing UniCredit has traded at a discount to its closest rival

“We are ready to discuss how [UniCredit’s] banking model will change but there cannot be a narrow cost-cutting strategy,” said Lando Sileoni, secretary-general of the national bankers’ federation, FABI. “The bank must guarantee new hires in the face of early retirements.”

Culture clash

Orcel’s political nous will also be tested in his interactions with the UniCredit board and his new management team.

Mustier’s frequent clashes with UniCredit directors over the group’s global strategy eventually led to the Frenchman being forced out. The board will be refreshed at the AGM, but Orcel will still be grappling with a highly politicised environment and a stubborn board.

Padoan, who will take over as chair on Thursday, is the former Italian finance minister who oversaw the bailout of MPS. According to several people in Rome, Orcel has already met with the Treasury’s director-general Alessandro Rivera to discuss plans for MPS.

Meanwhile, Orcel needs to decide whether he adapts his own high-octane work schedule to UniCredit’s less intense culture, or prepares his managers for the volley of calls from 6am.

One European banker who knows Orcel and Mustier well said the French former paratrooper had already put in the ground work at UniCredit.

“These guys have already done a half-marathon with Mustier — he had to change the culture a lot,” he said. “He started to run it in a more aggressive way, not starting at 5am, but maybe 7am.

“Andrea is working on a basic level of fitness. It’s going to be harder to go to a marathon, or even ultra-marathon, which is what Andrea has in mind. Some will succeed, others will fall by the wayside.”

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