Orcel’s Big Return at UniCredit Comes With Plenty of Headaches

Andrea Orcel is back after some time away from the top ranks of European finance, but the challenges for the new chief executive officer of UniCredit SpA are just beginning.

After spending two years out of a job over a botched move to Banco Santander SA, the former top investment banker at UBS Group AG was named Wednesday to take over at the helm of Italy’s No. 2 bank. For Orcel, who had been waiting for a chance to run a top lender for years, it marks a return to the firm he helped create more than two decades ago.

But the 57-year-old Rome native is facing a slew of challenges, some of which are already familiar. Italy is pressing UniCredit to take over troubled lender Banca Monte dei Paschi di Siena SpA from the state. Orcel, who advised on a key deal for Monte Paschi just before the financial crisis, will have to weigh Rome’s interests against those of investors, and that’s far from the only headache his new role brings.

UniCredit will submit Orcel’s nomination to shareholders on April 15. His predecessor, Jean Pierre Mustier, is expected to leave in mid-February and an internal top manager will take the lead until the new CEO is in place, people familiar with the matter said.

Here’s a rundown of the top challenges facing Orcel when he takes over:

The Growth Concerns

Orcel will quickly need to lay out a strategy for growth after doubts over the bank’s direction helped lead to Mustier’s exit. UniCredit is one of the worst performing bank stocks in Europe over the past year, and it recently lost the crown of Italy’s biggest bank after Intesa Sanpaolo SpA bought smaller rival UBI Banca SpA.

A key question is whether UniCredit will be more open to acquisitions than it had been under Orcel’s predecessor, and whether it’s willing to do cross-border deals in a region that still doesn’t have a unified market for banks. UniCredit has a big operation in Germany and has been named from time to time as a potential suitor for Commerzbank AG, which is currently working on the latest in a series of turnaround plans.

The Monte Paschi Headache

As a dealmaker who advised on some of Europe’s biggest transactions, Orcel may well be more open to acquisitions, but one deal may be particularly troubling. The Italian government has been trying to find a way to unload Monte Paschi on UniCredit for months, contributing to a conflict that helped drive Mustier out of Milan. On top of sweeteners including tax relief, the state is racing to find a way to take 10 billion euros ($12.1 billion) of legal risks off Monte Paschi’s books Bloomberg reported on Wednesday.

Investors have been critical of a possible takeover, but Orcel’s position is complicated by the fact that he was involved as adviser in Monte Paschi’s acquisition of Antonveneta in 2007. Critics say Monte Paschi massively overpaid, and the transaction has dogged the world’s oldest bank ever since. Less than 10 years later, when Paschi was on the brink of a collapse and Orcel at UBS, he proposed a rescue plan that was rejected by the bank.

The Government’s Role

Former Finance Minister Pier Carlo Padoan is set to take over as UniCredit chairman in April, which may signal a closer relationship with the Italian government.

The question is: which government? Prime Minister Giuseppe Conte, who has shown a willingness to intervene in industries including finance, resigned this week as he struggles to scrape up enough support to get a new mandate. Its uncertain how the political situation will unfold.

The Italian Debt Woes

Orcel will have to work in an Italian economy that’s in dire shape. Already the European Union’s second-most indebted country before the pandemic, Italy was hit hard by the virus, causing the government to go even deeper into the red. The country’s deficit may reach 9.2% of output this year, and parliament last week backed plans for 32 billion euros in extra spending, the fifth such measure since the start of the crisis.

UniCredit, like most of its Italian peers, faces the possibility that the economic crisis could undo years of reforms that improved their balance sheets and reduced piles of bad loans. UniCredit set aside almost 3 billion euros to cover soured loans in the first nine months of 2020 and analysts expect provisions to climb further in the fourth quarter.

The Strategy Dilemma

Orcel will need to set a different course than Mustier, who clashed with board members over issues including his plan to hive off UniCredit’s non-Italian operations into a separate holding company, his exit from profitable business and his focus on an organic growth strategy.

Under Mustier, UniCredit sold about 15 billion euros of assets, including online bank Fineco asset manager Pioneer and Poland’s Bank Pekao. While the sales raised capital, they have left the bank without key profit-making assets. Will Orcel reverse the course, joining rivals Intesa and Mediobanca SpA in betting on wealth management and private banking to offset negative interest rates? And will he be inclined to strengthen the investment banking division to close the gap with peers?

The Management Challenge

Finally, there’s Orcel himself. Former colleagues have described him as tireless, demanding and direct. Revered by some as one of the best investment bankers, he’s clashed with others. Early on at UBS, he reportedly said in a private gathering that bankers should be on duty 24/7, suffer sleepless nights before pitching for business and be paranoid about winning mandates.

His hard-charging personality was also on display when he left UBS in 2018 to take the top role at Santander, a lender he had advised on deals in the past. When the move fell apart in a dispute over his back pay, Orcel sued Santander for 100 million euros, saying the bank ruined his career. Santander in turn accused Orcel of secretly recording conversations on the matter.

©2021 Bloomberg L.P.

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