UniCredit's private banking business says it is one of the top players in central and Eastern Europe, with profit results to match. This publication caught up with its CEO to find out about its strategy.

For any continental European bank buffeted by the storms hitting the eurozone, it is encouraging if at least its private bank delivers solid profits even if other business segments find life more difficult.

At UniCredit, the Italian-headquartered firm, its private bank can take some quiet satisfaction from a €304.4 million (around $376.9 million) pre-tax profit for the 2011 financial year and total financial assets of €142 billion. UniCredit Private Banking belongs to the fifth largest onshore private banking network in Western Europe with over 206,000 clients. The private bank operates in four countries: Italy, Germany, Austria and Poland.

More recently (first quarter, 2012), total financial assets stood at €150.7 billion, a gain of 5.8 per cent from December last year; operating profit in the first quarter (€92 million) rose 12 per cent on the same period last year. The trajectory is heading in the right direction. And furthermore, UniCredit has what by the standards of this business is a positively stingy cost/income ratio of 59.3 per cent, down from 62.3 per cent in the fourth quarter. (Some commentators might argue that comparing these ratios between stand-alone wealth managers and universal banking models is next to impossible, given where some of the costs originate).

One bank

At this firm, the philosophy is very much along the lines of the sort of “one bank” model stressed by players such as Credit Suisse, Barclays or JP Morgan. There is nothing very “stand-alone” about the private banking business of UniCredit, and as far as Helmut Bernkopf, chief executive of this business is concerned, that is the right approach. He has been in the post since last summer. (Previously, Bernkopf had since September 2008 been head of corporate and investment banking at UniCredit's Bank Austria unit and a member of the Austrian bank's management board. He has worked at Bank Austria since 1994.)

“Our market position is that of a universal bank,” he said. “We [at the private bank] make a good contribution in terms of share of revenues, at 5 per cent of the total. In the last few years, our contribution in terms of profit was around 15 per cent. That was a result of other parts of the bank not doing as well due to the impact of the financial crisis on the market in general,” Bernkopf told WealthBriefing in an interview at the firm’s London offices. (There is no private banking in London; UniCredit conducts other banking operations in the city.)

“The reason we’re in this business is that it is a sustainable generator of profits and low in terms of absorbing capital,” he continued.

The private bank ranks number one in market share (16 per cent) in the Austria market, number three in Germany (5 per cent) and number one in Italy (10 per cent).

Machine

Bernkopf elaborated on how cross-selling works within the banking group’s divisions.  “We have a good internal development machine for customers that come from the retail side and, as their lives develop, their needs are managed eventually by the private banking unit.”

“It is one of the strategic pillars of this firm to push cross-selling,” he continued. “We look at a lot of data to find out which entrepreneurs are potential customers for private banking.”

The cross-selling relationships between different segments of the bank have, if anything, intensified in the past two years, he said.

 The bank operates a “guided architecture” in terms of how the asset management side of clients’ interest are handled; a selection of firms’ funds is chosen. Some 150 to 170 funds are analysed as part of this process.

“It is very clear that a multi-local bank has to do that [hold a global investment view] from a sales perspective. As we are in different markets, it is not possible to have different philosophies for clients in different countries.”

Local markets

Local market conditions vary considerably. In Poland, for example, the local market is still at a relatively early stage; about 80 per cent of client money is still held in basic deposit accounts, although this is changing. Some of the pace of change has been hit by the 2008 financial crisis.

In Austria, there is a small “offshore” business of holding wealth of expat CEE citizens as well as a domestic market for affluent Austrians.  (To view more about the Austrian wealth management industry, click here.)

The German and Italian markets represent – at the moment – much bigger slices of UniCredit’s private banking business. So far, the business has managed to make positive headway against what has been a tough backdrop. The issue, as always, is keeping that progress on track.