Vienna has traditionally been a hub for capital markets in Central and Eastern Europe. This is currently being challenged by Warsaw. The UniCredit GSS Newsletter asked Mr. Willibald Cernko, CEO of UniCredit Bank Austria and President of the Supervisory Board of the Vienna Stock Exchange as well as the CEE Stock Exchange Group, for his perspective.
Mr. Cernko, what is, in your eyes, the function of the Vienna Stock Exchange domestically and internationally?
The Vienna Stock Exchange has a broad international base in terms of market participants as well as investors. Numerous companies listed on the Vienna Stock Exchange have been operating very successfully in Eastern Europe and internationally, with some of them as global market leaders in their respective sectors. This internationalisation strategy would not be possible without financing provided through the Austrian capital market. At the same time, however, Austria is a “small” country and this “smallness” is reflected in its capital market, which tends to be affected by economic fluctuations to a greater extent than more sizable markets.
We are, nevertheless, observing tremendous pressure towards the consolidation of exchanges. It remains to be seen whether they will be reduced to a narrow number of major players or whether there will still be room for smaller, cross-regional exchanges. I believe that smaller regional exchanges certainly bear potential as instruments for capital procurement for smaller companies who risk getting lost in the crowd on large exchanges. In this sense, we need to ensure the functioning of regional exchanges that closely cooperate within their networks. Any market concentration can thus work very well alongside small regional hubs for medium-sized companies.
It has been officially announced that the Vienna Stock Exchange has entered into negotiations with the Warsaw Stock Exchange. Where do these negotiations stand at the moment?
We have initiated talks with Warsaw. Currently, we are examining the strategic options and potential areas of cooperation; the outcome is completely open. The initial requirement is that we achieve a starting position, from which we can discuss on a level playing field.
With or without Warsaw: How do you see the future role of the Vienna Stock Exchange?
It is clear that the Warsaw Stock Exchange has shown tremendous momentum lately. But we must take into consideration that this has largely been driven by listings of small companies that hardly generate turnover. In addition, the Polish pension reform will take its toll and reduce the attractiveness of IPOs on the Warsaw Stock Exchange.
So we are not in all that bad of a position by comparison. In any case, the Vienna Stock Exchange and the exchanges in Prague, Budapest and Ljubljana each have to play a role that makes sense within an attuned network. A few months down the road, I believe we will have a clear idea as to how we will operate in the future.
How would you assess the CCP.CEE’s plans to expand into markets outside Austria?
Following the very positive experience with the launch of the new spot market clearing system on the Vienna Stock Exchange in April, it is certainly worth considering extending it to the Prague Stock Exchange.
Vienna has distinctly underperformed compared to other markets lately. What is the reason for this?
This is mainly due to massive exaggerations in Vienna prior to the crisis. If one applied the valuation standards of the DAX, the ATX would not have been at 5,000 points but at 3,000 points – and the present situation would have been entirely different.
However, from a long-term perspective, the ATX is one of the best performers in Europe. It has risen by roughly 130% since the beginning of 2002, while the DAX has increased by about only 80%.
Will UniCredit maintain its CEE coverage in the current shape? Can you comment on the recent speculation about a possible withdrawal from Ukraine?
The majority of UniCredit’s profit comes from CEE. Our strength lies in the fact that we are founded on a very broad base, both in geographical terms and in terms of customer groups. Together, these two factors put us in the advantageous position that has allowed us to navigate through the crisis successfully. Not putting all of our eggs in one basket was the right approach.
In light of the persistently challenging economic conditions in Central and Eastern Europe, we are continuously concentrating on asset quality, risk management, and efficiency. Healthy customer business and strict cost discipline allowed us to increase our pre-tax profit in the third quarter of 2013, which demonstrates the scale of our ongoing efforts. As far as Ukraine is concerned, we have merged our two subsidiary banks into one.
How is UniCredit coping with the various measures the Hungarian government is imposing on banks?
Although the banking sector in Hungary has been confronted with a number of new regulations recently, UniCredit Bank Hungary is one of the few banks that have remained profitable. In contrast to most of our competitors, we closed out the first nine months of 2013 with positive results – to the tune of roughly EUR 50 million.
We are maintaining a constant dialogue with the Government through the Hungarian Banking Association which enables us to contribute our ideas to solving the issues that remain.
Does UniCredit consider investing in other CEE markets?
In line with the defined Strategic Plan, the CEE Division focuses on highly attractive countries such as the Czech Republic, Russia, and Turkey. Meanwhile, we have started to refine our geographical footprint and to simplify our organisational structure. In addition to that, we continue to reduce business risk and optimise investments as well as capital allocation. In principle, we might consider purchasing new assets, provided they match with our business model and the price is realistic. Anyway we’ll keep on acting locally in all our GSS markets.
Willibald Cernko
CEO of UniCredit Bank Austria
President of the Supervisory Board of the Vienna Stock
Exchange and of the CEE Stock Exchange Group