Tasks and strategy of Bank Austria Creditanstalt in UniCredit Group

Pillars of BA-CA’s strategy

The business combination has created

UniCredit Group, a bank with operating units in 20 countries. More than 142,000 employees serve about 35 million customers. This large market comprises highly developed yet overbanked markets, including three of the most prosperous regions in Europe, and strongly growing markets in Central and Eastern Europe.

Strategic hub

Two strategic lines of the Group intersect at Bank Austria Creditanstalt: first, the Austrian business segments are part of the divisional network of UniCredit’s Divisions. Second, acting as sub-holding company for the Group’s banking subsidiaries in Central and Eastern Europe (except Poland and Ukraine), our task is to use the growth opportunities available in young markets in a locally differentiated manner. We hold leading positions in both markets: our market share in Austria as a whole is about 20%, and in some segments and regions it is significantly higher; in CEE, following the bundling of our own subsidiaries with those of UniCredit and HVB, we are market leader by a wide margin – with total assets about double those of the nearest competitor.

To meet the expectations of the capital market with regard to UniCredit Group’s performance, we have to make an important contribution in both markets. In the revolving 3-year planning process, our contribution is defined in a top-down and bottom-up process. Implementing the Group strategy, we pursue our activities along the following lines:

Clear governance

Simple and clear decision-making paths are required for managing the complexity of a group with many members.

Creating these institutional conditions was a focal area of our agenda in 2006. The shareholders’ agreement (Restated Bank of the Regions Agreement) in the middle of March had paved the way to the transformation which proceeded in several steps – listed in the box on the right. As a result of the various transfers, BA-CA is now the sub-holding company for CEE, with the UniCredit holding company having direct responsibility for Poland’s markets (Poland itself and Ukraine) to meet conditions specified by the Polish government. Following the sale of HVB’s shares in BA-CA to UniCredit (and after registration of the capital increase), UniCredit now holds 96.3% of BA-CA’s share capital. The initiated withdrawal of the BA-CA share from the stock exchange and the compensation to be paid to the minority shareholders are a logical step taken to simplify shareholding structures.

Value-based management and transparency of results

Overall management and control of the bank within UniCredit Group is based on the principles of value-based management. In previous years we introduced added value on equity as a performance measure (adjusted profit in excess of the cost of capital), taking account of the cost of capital not only at the level of business segments and regions, but also for micro control purposes (down to the pricing of individual products). Value-based management provides important guidance for the management of operations in Austria and CEE; it is a standard measure of performance combining growth (development of risk-weighted assets and thus capital allocation) and profitability enhancement as value drivers.

In line with the current 3-year plan, we expect the Austrian business divisions and our growth markets in CEE to deliver strongly increasing value creation. Cross-subsidies between these two areas, and between business segments, are disclosed and eliminated. While we aim to maintain and further improve our market position in Austrian customer business, the main value driver in this area is the improvement in cost efficiency.

In the CEE countries, organic growth requires the allocation of additional capital on which a return has to be generated. Thus performance standards are moving upwards. This means that we will have to maintain the comparatively good return on risk-weighted assets – despite the foreseeable convergence of the CEE banking sector towards West European levels. From the very beginning, we therefore focus on optimal employment of capital in CEE, promoting product areas and services with a high added value in order to avoid the misguided developments seen in the Continental European banking sector in the past decades.

Operational implementation through divisional business model

The core of UniCredit’s business model is specialisation in specific customer segments. This is a supraregional approach because basic customer needs, service models and market segments are more similar to each other than national market practice. This is obvious in business activities such as trading and investment banking in global financial markets as well as international corporate banking, and also in asset management. However, in the above-mentioned banking environment, this also applies to retail banking.

Quite generally, our objective is to meet every customer’s personal needs – in line with the motto "all business is local" – through discretionary or standardised products. In production and product development we aim to unlock economies of scale on the revenue and cost sides. Global product lines within the Divisions ensure know-how transfer according to the principle of best practice. Wherever there are specific locational advantages, we will use them by establishing centres of competence with a view to improving our competitiveness.

Integration of CEE subsidiaries

The CEE subsidiaries are combined in a separate Division because market maturity, product penetration and the respective starting position in the individual markets still differ considerably. It should be noted that on the supply side, banking business is conducted in a "state-of-the-art" manner and – as mentioned in the description of value-based management – is also subject to the same criteria regarding efficiency. Given the development and progress over the past years, the production of individual services in customer business and in back-office activities has reached a level of efficiency which we will use for the bank as a whole.

We have created clear governance rules in the CEE business segment. In the near future, efforts will concentrate on completing the integration projects. In this context, "quick wins" are the local integration of the entire business in the "merger countries“ – i.e. those five countries in which we are represented through several banking subsidiaries – and unlocking related synergies. Integration also has supraregional significance: in about 20 current cross-regional projects, we are working to align the entire network with UniCredit Group standards. This includes setting up compatible structures in customer business while maintaining the responsibilities of local account managers as well as uniform control mechanisms, e.g. an overarching management information system, risk management, bank treasury and capital management. We have also set up a cross-regional HR integration programme with tasks divided among different locations in the network. The objectives of this programme are to develop local talent and a cross-regional management elite.

Using the Group’s network and strengths to serve customers

We believe that making available to our customers an extensive network of banks which are among the local leaders in their markets is an essential competitive advantage based on developments over many years. We aim to leverage on this advantage in the entire market covered by UniCredit Group and actively use it, e.g. through our Cross-border Client Group approach.

Conversely, the bundling of Markets & Investment Banking and of Asset Management – the latter within the network of Pioneer Investments, a top global player – has substantially improved our performance capabilities and our standing in local customer business.

This strong presence is underlined by a coordinated and standardised brand architecture under the global UniCredit brand. It symbolises the ambition and strength of a group organised along supraregional lines, and strong roots in the regions.

Global Banking Services: Infrastructure and processes

Global Banking Services, a global UniCredit Division, supports the entire integration process and plays an important role in maintaining cost efficiency, unlocking synergies and using locational advantages in the long term on the basis of best practice. Projects that are under way range from process design to IT harmonisation, facility management and Group-wide procurement. The cost synergies which the bank seeks to achieve are not only "quick wins" but also enhance performance capabilities in customer business.

From profit to value

As explained in previous years, Bank Austria Creditanstalt pursues the objective of long-term value enhancement. Within UniCredit Group this objective has top priority. We are convinced that the financial targets can only be achieved through sustainable development in line with the following principles: