Italy's largest lender UniCredit Group is getting into bed with Mikhail Fridman's Alfa Group, eight years after embarking on a disastrous investment with another leading Russian financial group.
The Milan-based bank announced on January 11 a binding agreement to take new shares worth 9.9% in ABH Holdings, part of Russian billionaire Fridman's Alfa Banking Group that focuses on the Commonwealth of Independent States, as part of a deal to dispose of its struggling Ukrainian subsidiary Ukrsotsbank.
UniCredit bought Ukrsotsbank at the top of the market in 2007 for €1.5bn, but the problems of that country since the financial crash of 2008 has pushed the Italian lender into trying to offload the bank for the past two years.
The eventual buyer Fridman, who has a reputation for employing extremely aggressive business practices with his foreign business partners, and the lack of cash involved in the deal point to how hard it was to sell the Ukrainian subsidiary at this difficult time for the country, which is suffering from a civil war in the east and an economic crisis. The sale of Ukrsotsbank will force UniCredit to book a one-off charge of €200m in the fourth quarter of 2015.
"It was for sure not easy, the bank has been available for sale since the end of 2013. At the beginning we had a few options, but this was the one that went through and we ended up with a good and very serious counterparty," Carlo Vivaldi, head of CEE Division at UniCredit, tells bne IntelliNews in an interview.
UniCredit already has a relatively successful banking unit in Russia operating since 1989, the 10th largest lender by assets, which is bucking the trend of other foreign banks that are exiting the country. But its history in that country has not been without its problems.
In 2006, UniCredit acquired Aton Capital for $424mn at a whopping four-times book value after beating off competition from Goldman Sachs. But the Italian bank was forced to write down the brokerage's goodwill worth €140mn in 2008, and another €18mn in 2009.
Yevgeny Yuryev, the founder of Aton and a former adviser to Russian Prime Minister Dmitry Medvedev, shocked the Italians by restarting a brokerage using the same Aton Capital name in 2009. He lured many of the same key personnel back from UniCredit to run the operation. UniCredit then wound down the Russian equities business in 2012 in the face of growing competition from state-owned lenders and shrinking margins.
The Italians can only hope that their deal with the wily billionaire Fridman and his key lieutenants Peter Aven and German Khan will go better.
The agreement with Alfa has interesting facets in that UniCredit gets a seat on Alfa Banking Group's board and the right to trigger an initial public offering in what would be a monster listing given Fridman's interests in oil, retail and telecommunications.
As part of the terms of the deal, Alfa also has the right to acquire an unspecified amount of share capital in UniCredit within five years.
The Italian bank is already familiar with Alfa being in its shareholders structure. Pampalona, a Fridman-backed private equity firm based in London, acquired a 5% stake in UniCredit back in 2012. Pamplona is headed by Alex Knaster, a former Alfa Bank chief executive who still sits on various Alfa boards.
With UniCredit's share price at depressed levels at the time and Fridman flush with cash, rumours abounded that Alfa was going to take out the Italian lender. This never came to pass and Alfa sold its stake in 2014 after the Italian bank's share price had tripled.
Fridman and his partners, who moved their holding company to London, have been aggressively diversifying outside of Russia over the past three years into the UK, the Netherlands, Latin America and Africa after offloading their stake in the TNK-BP joint oil venture for $13bn in 2014.
Alfa Group owns Russia's second-largest retailer X5 Retail Group and wireless operator VimpelCom, which operates in 14 countries in former Soviet republics, Africa and Asia. VimpelCom agreed to merge its Italian operations with CK Hutchison Holdings last year to de-consolidate the unit's debt.
Alfa, which shuttered its own brokerage unit in Kyiv in 2014, acquired the Ukrainian unit of Bank of Cyprus last year for €202.5mn.
UniCredit's exit from Ukraine comes three years after it sold Kazakhstan's ATF Bank, a $2.1bn investment made on the cusp of the financial crisis for which it also booked a loss.