UniCredit CEO Orcel Says Bank Failures Were Isolated Cases

UniCredit SpA Chief Executive Officer Andrea Orcel said that his approach amid the recent turbulence in the banking sector is “steady as she goes,” and that his bank is well-capitalized and liquid.

(Bloomberg) — UniCredit SpA Chief Executive Officer Andrea Orcel said that his approach amid the recent turbulence in the banking sector is “steady as she goes,” and that his bank is well-capitalized and liquid. 

Recent failures “were isolated cases, they were pretty much idiosyncratic, they highlighted that regulation has to be applied consistently across not only banks of any size but also all financial intermediaries,” Orcel said Wednesday in an interview at the Bloomberg New Economy Gateway Europe near Dublin.

The collapse of Silicon Valley Bank and the emergency rescue of Credit Suisse Group AG last month has rattled investors and raised questions about the broader stability of the financial industry at a time of soaring interest rates and higher inflation. 

The executive argued that banks are built on trust and confidence. While European banking regulation has worked during the period of stress, it’s unrealistic to expect banks to be able to eliminate all risks – doing so would negate the role they’re meant to play in the economy, Orcel said.

“When you have these situations, people are reminded that banks are not all the same, that there are strong banks and less strong banks,” Orcel said. “Therefore you have a flow of deposits, a flow of liquidity toward the quality of the stronger banks away from the weaker banks.”

Banking Union

With a presence in 13 countries including a major business in Germany, Orcel said UniCredit wants to be the bank for Europe. But he sees cross border consolidation as difficult, since incentives are limited.

A more integrated EU “would create an immense opportunity for UniCredit,” he said. But UniCredit cannot become a pan-European bank if the “EU is fragmented, it will not. And no other bank can do that.”

European banking fragmented along national lines after the 2008 financial crisis and political squabbling over risk-sharing has since prevented the completion of a unified market where lenders can freely move capital and liquidity across borders. A push last year failed to resolve the impasse, although the European Commission this week sought to regain momentum with a more limited package of measures.

Read More: EU Proposes Smoother Path for Winding Down Smaller Banks 

“At the moment the incentives to do M&A are limited to countries where you’re local,” Orcel said. In cross border deals “if you do not have a unified market and free-flowing capital, free-flowing liquidity and common rules, your synergies plummet and therefore there is very limited incentive to pursue that.”

UniCredit is rolling out one of the biggest investor-return programs in Europe, with €16 billion in buybacks and dividends pledged through 2024. The bank, which along with competitors is benefiting from rising interest rates, boosted shareholder returns on 2022 earning by 40% compared with a year earlier and reported better-than-expected profit.

–With assistance from Nicholas Comfort.

(Updates with further comments)

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