The_Wall_Street_Journal_Asia__September_13_2016

THE WALL STREET JOURNAL. Tuesday, September 13, 2016 |B

FINANCE & MARKETS

markets with a set of strate-

gic projects and a greatly re-

duced role in day-to-day op-

erations.

Mr. Lake didn’t immedi-

ately respond to a request for

comment.

His departure is the latest

in a series of exits from the

global banking division after

Florian Fautz, global head of

mergers and acquisitions, and

John Crompton, head of cor-

porate finance, left in June.

HSBC is cutting tens of

thousands of jobs across its

units and exiting businesses

to improve returns. Within in-

vestment banking, it has com-

bined country, sector and

product teams to save money.

Samir Assar, HSBC’s chief

executive for global banking

and markets, told staff in a

memo that Mr. Lake had been

a great advocate for the bank,

helping it to win awards and

influence policy.

Mr. Lake joined the bank in

2006 as global head of debt

capital markets after a long

stint at Merrill Lynch. He be-

Meanwhile, the travails of

Italy’s No. 3 lender, Banca

Monte dei Paschi di Siena

SpA, promise to only compli-

cate Mr. Mustier’s job. On

Thursday, Monte dei Paschi

said its CEO, Fabrizio Viola,

had agreed with the bank’s

board to resign, in a surprise

move that came as that bank

works on a plan to shed €

billion in bad loans.

Troubles at UniCredit,

which has a vast business in

Germany and Eastern Europe,

could threaten not only Italy’s

ailing economy but also the

continent’s already fragile fi-

nancial stability.

Britain’s vote to leave the

European Union has upended

Europe’s status quo, making

the financial system more sen-

sitive to shocks. Investors are

watching UniCredit closely, as

they expect its fate to affect

both Italy and potentially

other lenders on the conti-

nent.

“Fixing UniCredit is of para-

mount importance for Italy’s

banking system, for the coun-

try’s economy and for the eu-

rozone,” said Fabio Caldato, a

London-based partner at asset

manager Olympia Wealth

Management.

Like most of its Italian

peers, UniCredit has sustained

a double whammy of ultralow

interest rates—Italian mort-

gage rates are as low as 1%—

and a decade of economic dol-

drums in Italy, which have

helped drive up bad loans and

batter profits.

For several years, the bank

responded by gradually raising

commissions, selling assets

and cutting costs. The push

has yielded little. In the past

two years, commissions inched

up 2% to €7.9 billion for 2015.

That failed to offset an 8%

drop in net interest income—

the difference between inter-

est the bank receives on loans

and what it pays on deposits—

to €12 billion last year.

As a result, a plan to reach

net profit of €5.3 billion in

2018 appears wildly optimis-

tic, with net profit last year at

just €1.7 billion. At the same

time, the bank has had to

write down €24 billion in bad

loans in three years.

These problems have con-

spired to leave UniCredit’s

common equity Tier 1 ratio, an

important measure of banks’

capital, at 10.51% at the end of

the second quarter, just a hair

over regulatory requirements

of 10% and lower than the

12.7% for its Italian rival In-

tesa Sanpaolo SpA.

UniCredit ousted its chief

executive this spring, hiring

Mr. Mustier in June.

With the stock down more

than 60% since the start of the

year, Mr. Mustier sought to

buttress investor confidence in

July by announcing two trans-

actions immediately after tak-

ing the helm: the sale of 10%

stakes in two of the bank’s

crown jewels—online broker

FinecoBank SpA and Poland’s

Bank Pekao SA.

However, a few weeks later,

the stress tests showed that a

downturn would leave the

bank with a dangerously thin

capital buffer of just over 7%.

The bank’s stock fell 13% in the

days after the stress tests. It

has picked up since but is still

down 55% in the past year.

Now, Mr. Mustier faces

some tough choices as he

readies a new strategic plan

slated before year’s end. First,

he plans to fatten UniCredit’s

capital cushion by at least €

billion, according to a person

familiar with his thinking.

But the figure could be

higher if the bank decides to

sell a large chunk of its bad

loans in one go—an option in-

vestors are pushing for and

Mr. Mustier is considering, the

person said.

A major move to unload

bad loans, perhaps as much as

€20 billion, “will be key for a

rerating of the stock,” said Vi-

cenzo Longo, a Milan-based

strategist at IG Markets.

However, Monte dei Paschi

presented a plan in July to sell

€28 billion of bad loans at 27%

of face value. That has effec-

tively set a new benchmark for

the pricing of Italian bad

loans. Since UniCredit attri-

butes a higher value to its bad

loans, a sale of €20 billion of

loans would force it to take €

billion in write-downs—thus

increasing the size of a capital

increase.

Mr. Mustier could also sell

assets to beef up capital, but

such prospects have worsened

recently. Turmoil in Turkey

would make it hard to sell the

bank’s Turkish business.

Meanwhile, UniCredit has

been in talks to sell its remain-

ing 40% stake in Pekao to Pol-

ish insurer PZU SA, but the

latter is now interested in buy-

ing just 30%, according to peo-

ple familiar with the situation.

Any capital increase could

also collide with Monte dei

Paschi’s plans for a €5 billion

share sale this winter, amid a

market with little appetite for

Italian banking shares.

Indeed, Monte dei Paschi is

considering asking investors

to convert riskier bonds into

shares to reduce its capital in-

crease.

MILAN—For UniCredit
SpA, the summer of discontent
for Italy’s banks looks likely to
stretch well into the fall—and
possibly beyond.
UniCredit, Italy’s largest
lender by assets, emerged as
one of the weakest big banks
in Europe in July’s stress
tests, showcasing the failure
of its attempts to respond to
rock-bottom interest rates and
a huge pile of bad loans.
Now, as Jean-Pierre Must-
ier, the bank’s new chief exec-
utive, readies a big-bang plan
to revive UniCredit’s fortunes,
he faces a series of unpalat-
able choices: Aggressive action
to cut the bank’s €80 billion
($89.9 billion) in bad loans—
the largest of any European
bank—would force the Mila-
nese bank to raise billions in
fresh capital, while an asset
sale could help bolster its cap-
ital position but would hurt al-
ready thin profit.

BYGIOVANNILEGORANO

Italy’s Biggest Bank Caught in Tight Spot

UniCredit’s troubles

imperil the nation’s

economy, financial

stability in eurozone

UniCredit Chief Executive Jean-Pierre Mustier’s job is complicated by low interest rates and a weak economy.

ALESSIA PIERDOMENICO/BLOOMBERG NEWS

Stressed Out

UniCredit stock has slid over the
past year, as investors worried
about its capital buffer in the
event of a shock.

THE WALL STREET JOURNAL.

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JFMAMJ JAS

nance, human-resources and

communication departments.

The plans will be completed in

the coming months.

The restructuring comes as

European banks grapple with

record-low interest rates,

stricter regulations and a shift

to digital banking services.

Analysts have said the current

environment could force lend-

ers to further slash costs.

ABN Amro said market con-

ditions are pressuring its

business model and profit

margins, and that it needs to

free up money to invest in

growth areas such as digital

services.

“We need to tackle the

bank’s bureaucracy, eliminate

duplication of work, make

sure that our managers ‘walk

the talk,” Chief Executive Ger-

rit Zalm said.

12% decline in the first three

months of the year.

Mr. Jenkins is focused on

the unit’s credit investing,

which includes energy lending,

providing capital to midsize

companies and bets on dis-

tressed debt.

Credit is an “established,

profitable business” for Car-

lyle, Mr. Lee said in an inter-

view. “Mark’s hiring makes a

strategic statement that we

are committed to investing in

and growing the credit plat-

form.”

Carlyle has been active in

collateralized loan obligations,

distressed investing and other

areas of credit over the years.

It may seek to build on its na-

scent debt business in Europe

or providing bonds and loans

to small companies or those

with atypical capital needs.

During his eight years at

CPPIB, he built the pension

fund’s direct-lending business

and oversaw its $12 billion ac-

quisition of General Electric

Co.’s private-equity lending

business, Antares Capital. Be-

fore that, Mr. Jenkins co-led

Barclays PLC’s leveraged-fi-

nance business in New York

and worked in Goldman Sachs

better this year, returning

13% through the end of Au-

gust. This marks a reversal

from 2015, when Pure Alpha

gained about 5%, while All

Weather lost 7%.

Investors had been lining

up to allocate new capital to

Bridgewater for years when

the firm last year launched a

new fund called Optimal Port-

folio, which blends the All

Weather and Pure Alpha

strategies. The firm took in

about $11 billion last year.

Bridgewater continued to

take investments for Optimal

Portfolio at the start of 2016

and reopened Pure Alpha

about five months ago, the

person familiar with the mat-

ter said. Investors have put

about $11.5 billion of new

money into Bridgewater since

January, the person added.

Bridgewater Associates

LP , the world’s largest hedge-

fund manager, is raising new

money for its flagship Pure

Alpha fund for the first time

since 2009, a person familiar

with the matter said.

The move follows an un-

characteristically poor perfor-

mance this year for the $

billion fund, prompting the

firm to open Pure Alpha up to

investors to bring it back to

its optimal size, the person

said.

Pure Alpha uses a macro

investment strategy to bet on

and against world markets.

The fund, which hasn’t had a

losing performance in the

past 15 years, lost about 9%

through August. It has re-

turned an average 12% annu-

ally since 1991.

News of Pure Alpha’s re-

opening was reported earlier

by the Financial Times.

Bridgewater’s slightly

smaller All Weather fund,

which employs a risk-parity

strategy based on passive au-

tomated programs, did far

BYMATTWIRZ

Bridgewater Raises

Cash for Key Fund

Group Inc.’s finance and fixed-

income departments.

CPPIB, like other Canadian

pensions, takes stakes in funds

managed by Carlyle and other

firms but also directly invests

in companies and other assets.

In recent years, the pension

has invested in department-

store chain Neiman Marcus

Group, retailer 99 Cents Only

Stores and health-care infor-

mation technology company

IMS Health Inc.

CPPIB promoted managing

director Shane Feeney to

global head of private invest-

ments, succeeding Mr. Jenkins.

Carlyle Group LP hired a
senior executive from Canada’s
biggest pension fund to over-
see debt investing, part of the
asset manager’s effort to re-
group from setbacks in its
credit and hedge-fund busi-
ness.
Washington, D.C.-based Car-
lyle tapped Mark Jenkins, most
recently head of global private
investments at Canada Pen-
sion Plan Investment Board ,
for the new position, according
to a statement.
The hire follows a series of
setbacks in Carlyle’s global
market strategies arm, which
encompasses much of the
firm’s investing outside of pri-
vate equity and real estate.
Like its peers, the firm has ex-
panded beyond its roots in
corporate buyouts over the
years, seeking to diversify,
boost assets and appeal to
shareholders following its 2012
initial public offering.
Global market strategies has
been a sore spot for Carlyle,
largely because of struggles at
its hedge funds Claren Road
Asset Management , Vermil-
lion Asset Management LLC
and Emerging Sovereign
Group LLC.InMay,Mitch
Petrick stepped down from a
role running the $34.7 billion
business. Carlyle tasked long-
time private-equity executive
Kewsong Lee to rebuild it and
has said it is reviewing options
to improve the unit’s perfor-
mance.
Overall, global market strat-
egies’ funds have fallen in four
straight quarters, including a

BYMATTJARZEMSKY

Carlyle Taps Pension Executive

Carlyle’s global market strategies arm has been a sore spot amid struggles at its hedge funds.

KEITH BEDFORD/REUTERS

AMSTERDAM— ABN Amro

Group NV could eliminate

more than 1,000 jobs as the

Dutch bank ramps up a re-

structuring plan designed to

reduce costs.

ABN Amro said Monday in

a letter to its works council

that it is considering scrap-

ping 975 to 1,375 jobs in the

next couple of years, a move

that would reduce annual

costs by €195 million

($219 million) to €225 million.

The bank, which is controlled

by the Dutch government, em-

ploys around 22,000 people

worldwide.

The bank had already

hinted at job losses when it

presented its second-quarter

results in August. The job cuts

could affect the bank’s fi-

BYMAARTEN VANTARTWIJK

ABN Amro Considers

A Round of Job Cuts

Pure Alpha, the

firm’s flagship fund,

lost about 9%

through August.

came a group general man-

ager—a top HSBC ranking—in

2012.

At the bank, Mr. Lake was

a key conduit between HSBC

and governments and policy

makers.

He is chairman of the In-

ternational Capital Market

Association, an industry body

for debt markets, and helped

drive work at HSBC around

internationalizing the Chinese

currency and promoting so-

called green, or environmen-

tally friendly, finance.

LONDON—A top HSBC
Holdings PLC banker, Spencer
Lake, is leaving the bank after
being sidelined in a manage-
ment shuffle earlier this year.
Mr. Lake, a group general
manager who was with the
bank for a decade, ran HSBC’s
global capital financing busi-
ness until February, when
HSBC merged the function
into its global banking unit.
Mr. Lake became vice chair-
man of global banking and

BYMARGOTPATRICK

High-Ranking HSBC Banker to Depart

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