Key facts
- UniCredit CEO Andrea Orcel plans to apply his cost-cutting and revenue-growth strategy to Commerzbank.
- The strategy involves reducing Commerzbank's cost base by €1.3 billion and streamlining management.
- UniCredit has previously reduced its workforce by 20% and cut management layers significantly.
- UniCredit's cost-to-income ratio has improved to 34%, outperforming European peers.
- Cultural differences and the hostile nature of the bid are expected to complicate integration at Commerzbank.
UniCredit CEO Andrea Orcel has a strategy for Commerzbank that has transformed UniCredit into one of Europe's most profitable banks. This blueprint involves significant cost-cutting, including slashing the workforce and reducing management layers, alongside a push for revenue growth. Orcel secured 48% of Commerzbank's shares and plans to reduce its cost base by €1.3 billion, a fifth of the total, while keeping it separate from UniCredit's German unit until 2029-2030.
Interviews with current and former UniCredit executives reveal the details of this transformation. Since becoming CEO in 2021, Orcel has reduced UniCredit's workforce by 20%, described central corporate teams as a 'bloated centre,' and shifted employees to branches for sales efforts. The bank's 'de-layering' process has cut management tiers from nine to four. These strict cost controls, combined with higher interest rates, have led to record profits and a tenfold increase in UniCredit's shares.
However, replicating this success at Commerzbank is expected to be difficult. The hostile nature of the bid has already alienated staff and management, and European Central Bank supervisors have warned of a 'challenging and prolonged' integration process due to cultural differences. Professor Kilian Huber of Chicago Booth noted that Orcel's challenges at Commerzbank will be more about managing culture and transition over many years, predicting a 'culture shock.'
UniCredit's cost-to-income ratio has fallen to 34%, significantly lower than the 55% average for ECB-supervised banks. Executives contrast UniCredit's management style with that of rival Intesa Sanpaolo, highlighting Orcel's approach of rewarding top performers and removing weaker ones, similar to U.S. investment banks. Orcel aims to lower Commerzbank's cost-to-income ratio to 37% by 2030, targeting central functions, consulting costs, and the international network. Huber also pointed out that Commerzbank's business model, built on long-term client relationships, is inherently more costly than UniCredit's standardized product approach.