UniCredit’s late chairman Fabrizio Saccomanni, outgoing CEO Jean Pierre Mustier, and incoming chairman Pier Carlo Padoan; the fortunes of Monte dei Paschi di Siena loom large in the background © FT montage

Minutes into an unscheduled board meeting on Sunday night, Jean Pierre Mustier knew his time as chief executive of UniCredit was up.

The Frenchman, one of just a handful of foreign chief executives at major Italian companies, had spent the past four years shoring up the country’s only globally significant financial institution.

Under Mr Mustier’s watch, UniCredit sold businesses worth €15bn, raised €13bn in new equity and offloaded more than €50bn in bad loans. He sought growth internationally and insisted publicly that there would be “no M&A” in Italy.

But while this strategy found favour with UniCredit’s international investors, it ran up against the board. And after months of tension, Sunday night’s video call confirmed that the bank’s incoming chairman Pier Carlo Padoan had an incompatible vision for the lender’s future.

Mr Padoan, a former Italian finance minister, told Mr Mustier that rather than looking outside Italy and cutting costs, UniCredit should double down on its domestic market.

“It was clear that the differences were irreconcilable,” said a person involved in the talks. “Neither side was willing to consider the other’s position.”

The board informed Mr Mustier that it had hired search firm Spencer Stuart to start looking for a new chief executive. On Monday evening, Mr Mustier announced he would not seek to stay on after his term ended in April.

UniCredit’s shares dropped 8 per cent on Tuesday, and are down more than 40 per cent this year. The Stoxx Europe 600 Banks index lost 21 per cent over the same period.

UniCredit’s underperformance against rivals and key moments

The abrupt departure from Italy’s second-largest lender of one of Europe’s most highly rated finance executives raises questions about the direction UniCredit will take.

The battle for control of UniCredit is a microcosm of similar strategic debates playing out across Europe’s largest financial institutions. It pits those looking inside their domestic markets for expansion against those trying to carve out a global footprint.

The toughest job in banking?

When UniCredit tapped Mr Mustier as chief executive in 2016 the hire was regarded as a coup and unanimously backed by the board. The former paratrooper, who had spent most of his career at Société Générale, was well regarded for his sharp intellect and experience of fighting fires.

At one point Mr Mustier had been the internal favourite to replace SocGen chief executive Daniel Bouton. However, his ascent at the French bank was derailed by the Jérôme Kerviel rogue trading scandal that occurred in the investment banking division under his watch.

UniCredit Tower in Milan is seen by many as a symbol of a resurgent Italy © Giuseppe Cacace/AFP/Getty

After an 18-month stint at investment manager Tikehau Capital, Mr Mustier returned to UniCredit — where he had previously run its corporate and investment bank from 2011 to 2014. He took up a job that was then viewed as one of the toughest in banking because of the Italian lender’s €80bn of bad debts and sagging profits.

To the outside world, Mr Mustier appeared the model global bank chief executive. He derisked UniCredit’s balance sheet by jettisoning non-performing loans and increased its capital buffers. Its common equity tier 1 ratio — a key measure of its financial strength — rose to 14.4 per cent, significantly higher than its regulatory required minimum.

After failing to push through cross-border mergers with SocGen in France and Commerzbank in Germany, Mr Mustier instead favoured returning billions of euros of excess capital to shareholders. He raised €15bn by selling various UniCredit businesses, including its investment arm Pioneer to Amundi in 2016 and its stake in the online banking and trading platform Fineco, while closing hundreds of branches and cutting 20,000 jobs.

These strategic calls were to antagonise members of UniCredit’s board.

The predominantly Italian directors prioritised protecting jobs and keeping branches open over slashing costs, while the disposals of Pioneer and Fineco were criticised for selling off the “family jewels” and then failing to carry out a transformative acquisition.

“Jean Pierre must be credited with the restructuring, cleaning the balancing sheet and de-risking it, but he’s struggled to indicate the way forward [over the next 10 years],” said a person involved in the board’s discussions.

Crucially, Mr Mustier pushed to spin off UniCredit’s Italian assets and list the foreign, more profitable ones in Germany. “Taking the holding company to Germany was simply a non-starter. It might make sense when there’s a cross-border merger in sight but there was nothing of the sort on the table,” said a director.

Italian banks have a high amount of non-performing loans

Pressure intensified this summer when rival Intesa Sanpaolo snapped up UBI Banca and replaced UniCredit as Italy’s largest bank by assets. Intesa, which has bought up other smaller Italian banks in recent years, now trades at a tangible book value of 0.64, more than double UniCredit’s valuation.

This reignited the UniCredit board’s desire to pursue a domestic acquisition. Mr Mustier, however, continued to insist publicly on “no M&A”. He rejected demands by the Italian government to buy Monte dei Paschi di Siena, the state-owned bank that Mr Padoan bailed out when he was finance minister.

That in itself was not a fatal clash. “The [MPS] story wasn’t a source of disagreement,” Mr Padoan insisted to the Financial Times. “My appointment was not political and it has nothing to do with MPS as the media have portrayed.” By Sunday Mr Mustier and the board had agreed the deal was feasible to the extent it would be “cost neutral” for UniCredit.

Tensions at the top

Mr Mustier’s problems with the board can be traced back to August 2019, and the death of UniCredit’s then chairman Fabrizio Saccomanni, another former Italian finance minister. Mr Saccomanni is described by former colleagues as charismatic and diplomatic: “He was the one who kept the board together [by] mediating between Mr Mustier and others,” said one senior UniCredit official.

Mr Mustier clashed with economist Stefano Micossi, a non-executive director at UniCredit and the director-general of Assonime, the national association of joint stock companies. As chair of the nomination and governance committee, Mr Micossi will lead the board’s search for a replacement.

Intesa Sanpaolo overtook UniCredit as Italy’s largest bank by assets this summer after it snapped up UBI Banca © Francesca Volpi/Bloomberg

Tensions ramped up further when Mr Padoan joined the board in October. His appointment was the first tangible sign the board wanted to take UniCredit in a very different direction. Mr Padoan’s background and his strong personal relations with European regulators and Italian institutions made him well-positioned to oppose any spin-off plan and German listing.

By the end, Mr Mustier had few boardroom allies left whom he could call upon. “There were different nuances, but nobody within the board opposed his departure,” said a director.

Given the board’s strategic priorities, Mr Mustier’s successor will almost certainly be an Italian national.

Among the early contenders are Victor Massiah, UBI’s chief executive at the time of Intesa’s takeover; Marco Morelli, executive chairman of Axa Investment Partners; Bernardo Mingrone, the chief financial officer at digital payments company Nexi; and Matteo Del Fante, boss of Poste Italiane.

Marina Natale, UniCredit’s former chief finance officer who currently heads Amco, the state-backed buyer of bad bank loans, is also seen as a strong contender.

Before his current position became untenable, Mr Mustier had planned to extend his time at UniCredit for another year. He has also been linked to other top jobs in European banking.

At the start of the year he was the HSBC board’s preferred candidate to take over the vacant chief executive position there. But he ruled himself out.

Mr Mustier was then in the running to become the new chairman of Credit Suisse. But this week the Swiss lender opted for outgoing Lloyds chief executive António Horta-Osório instead.

Now attention has fallen on two CEO jobs that are likely to open up. Barclays has begun the search process for a successor to Jes Staley; and at SocGen, where Mr Mustier began his career, its longstanding head Frédéric Oudéa is under pressure.

His reputation as an industry star is still intact — at least outside UniCredit.

“Poor Mr Mustier: he is a very good banker, but fell on his sword in this case,” said one of its top-15 shareholders. “Italian politics is not an easy game to play and it looks like their desires trumped common sense.”

Additional reporting by Stephen Morris in London

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