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"New Europe going strong": article from Milano Finanza

04.12.2012

Two years ago the banks of Central and Eastern Europe were seen as an unknown for UniCredit. Now they account for over 90% of the Group's profit. And they are a bridge to the East for 3 thousand Italian companies.

Two years ago, when Federico Ghizzoni took over the reins at UniCredit, the countries of Central and Eastern Europe appeared to be the Group's Achilles' heel. The crisis in 2008-2009 had had a severe impact on some of the economies in the region (Romania, Hungary, Bulgaria and the Baltic countries in particular) where UniCredit, as a result of the vast network of established under Alessandro Profumo, was (and still is) heavily exposed. Analysts feared that the economic slowdown would soon also have an impact on the Bank's finances. Only a few weeks before Ghizzoni was appointed to head the Bank, Fitch had lowered UniCredit's rating due to its "growing vulnerability to potential severe strains in Central and Eastern Europe (CEE) and the Community of Independent States (CIS)". Some had even gone as far as saying that, since he had been assuming growing responsibility for years over the countries of the New Europe, Ghizzoni had been chosen to the head the Group in order to sort out the eastern provinces of the empire. However, the CEO was very clear on this issue at the time: "The East is not a problem". And the results, at least up to now, are bearing him out. The CEE Division, which has been headed since December 2010 by Gianni Franco Papa, has not only ended the last two years with solid and steadily growing profits, but it is also helping to sustain the results of the Group (which is still in the midst of the reorganisation of its Italian operations) that have been affected by the deterioration of the macro economic environment in Italy, and more generally by the general slowdown in banking business in the mature markets in Western Europe. In the first nine months of 2012 the CEE Division, despite only accounting for 19% of revenues for the entire Group, contributed € 1.4 billion to UniCredit's profit, around 70% of the total. A proportion that rises to 92% if we also take into account the results of Pekao and UniCredit's Polish operations, which are not part of the CEE Division, but are one of the Group's four core markets together with Italy, Germany and Austria.

However, the successes achieved by the Bank to date in the markets of the New Europe have not created any tensions or jealousies between the various members of the Group. On the contrary, according to Papa, who in addition to heading the CEE Division is also deputy chairman of Bank Austria, which heads up the Eastern European Network, the strong results are attributable to membership of a pan-European group like UniCredit, which allows the Group’s international banks to offer their customers the products, expertise and professional services of the Parent. Resources that have been made available not only to the local customers of the 18 banks of UniCredit's Central and Eastern European Network, but also to Italian companies that have established export markets or set up production facilities in those countries. "A banking group like UniCredit, with a strong, widespread presence in the markets of Central and Eastern Europe, is an important asset for the Italian economy", explained Papa "because the Group can help Italian companies that already have a presence in or want to enter those markets. Currently the banks of UniCredit's CEE Division have around 3 thousand accounts held by Italian companies operating in numerous different sectors to which we are able to offer a full range of products: from commercial to investment banking, to cash management, through to leasing and factoring". And demand from Italian companies for assistance for their businesses in those markets is growing steadily, as reflected by the 450 new operations and relationships set up there by UniCredit in the last two years. Understandable, considering that, while Western Europe and Italy in particular are suffering from the impacts of the sovereign debt crisis on the real economy, there are markets in the region growing at a rate of 4-5% per year.

In Russia, for example, where UniCredit has a network of 105 branches under the UniCredit Bank brand and is present in all the administrative regions of the Russian Federation, there are around 350 Italian companies operating, of which around 250 are UniCredit customers, with 70 managed directly by the Moscow International Desk and the remainder split between large, mid-corporate and retail.

But Russia is not the only country driving UniCredit's growth in the East, which is also being eyed by the most dynamic Italian companies. In Turkey, for example, where UniCredit operates in a joint venture with the Koc family, under the Yapi Kredi name, and has a network of around 1,000 branches, the Group, which ended the first nine months with a net profit of € 285 million, has achieved the milestone of € 6.8 million customers. These customers include a large number of Italian companies, primarily operating in the infrastructure sector (which is in strong demand in this Eurasian country), but also in other manufacturing sectors.

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