December 3, 2019 / 4:54 PM / 5 days ago

Elk in tow, UniCredit's Mustier faces biggest battle yet

MILAN, Dec 3 (Reuters) - Jean Pierre Mustier has shed bad loans, raised billions in capital and crafted a quirky new image for UniCredit with the help of Elkette, a soft-toy he brings out for selfies with fellow bankers ranging from Jamie Dimon to Lloyd Blankfein.

But he has yet to convince investors in Italy’s top bank of its long-term growth prospects.

From insisting that executives sport red ties, UniCredit’s corporate colour, at official meetings to infusing steely discipline in an unwieldy group spread across more than a dozen countries, Mustier has made his mark on the 150-year-old Milan-based bank.

“Mustier’s done what nobody before had managed to, but people can’t help wondering about the future. He surely has a long-term design in mind but only he knows what that may be,” a senior UniCredit executive told Reuters on condition of anonymity.

Some investors expected the 58-year-old Frenchman, who used to run investment banking at Societe Generale, to bring his corporate finance skills to bear with a major cross-border deal.

But with no obvious target in sight after politics sank an attempt this year to combine with Germany’s Commerzbank , Mustier is now focusing on improving shareholder returns as the stock trades at just half the bank’s book value.

He must do so against a backdrop of negative interest rates, which are crimping margins, and low morale following 14,000 job cuts in three years and the prospect of a further 8,000 revealed on Tuesday under a new business plan to 2023.

“People are nervous inside the bank,” the executive said.

Expected annual revenue growth of 2% in Central and Eastern Europe is not enough to counter a sluggish outlook in Italy, Germany and Austria, making for a grim profit picture.

Mustier told a capital markets day in London on Tuesday that there was no M&A magic in prospect, and the bank would concentrate on strengthening its client base and controlling risks.

“We have outperformed our previous goals and successfully delivered on cost-efficiency and restructuring. Now you can trust us, we can do the same with productivity and customer satisfaction,” he said.

RED TIE DAY

Since becoming UniCredit CEO in mid-2016 Mustier has cut its problem loans by 50 billion euros, raised 13 billion euros from a stock issue and shed assets worth more than 12 billion euros.

Compared to the changes he set in motion in 2016, there were few novelties in the plan outlined on Tuesday, meaning it will be a steady grind if he is to improve returns.

With no in-house insurance or asset management businesses, UniCredit has fewer levers to pull during the euro zone’s “lower-for-longer” interest rate spell.

Another senior UniCredit executive said he still expected radical moves from Mustier, including the possible hiving off of UniCredit’s Italian operations, which explained the strong focus on credit risk, to prevent new loans from turning sour.

But Mustier on Tuesday ruled out such an option for the domestic business, where the commercial network, which accounts for nearly 40% of group revenues, has undergone job cuts and management changes.

Both a current and a former employee said IT upgrades were lagging the impact of staff reductions, making it harder for the bank to operate effectively with fewer people.

UniCredit will spend 900 million euros a year to update its IT systems under the new plan.

“Our CEO has tackled big life-or-death issues to fix the bank’s balance sheet. But the day-to-day life of the bank is something else,” another UniCredit staff member said.

For some insiders, Mustier’s military-like management style is becoming embedded in the bank and will ultimately bear fruit.

“Say what you will about the compulsory red tie at work meetings or the Elkette ... our identity as a bank was in tatters when he first arrived and he’s given us back a sense of ‘hey, we’re UniCredit’,” a former senior executive said. ($1 = 0.9073 euros) (Additional reporting by Giselda Vagnoni and Pamela Barbaglia. Editing by Alexander Smith and Carmel Crimmins)

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