UniCredit CEO: The Future of European Banking, Digital Transformation and Grit

0:00Andrea Orcel: Hi everybody and welcome to In Good Company and today I'm in a particularly good company because I'm here with Andrea Orcel who is also called the Ronaldo of banking. Now, Andrea has really left his mark on the European banking industry, is now the helm of Unicredit and just so many exciting things going on in your business and in your life. So, warm welcome.

0:24Nicolai Tangen: Thank you very much. I'm very happy to be here.

0:35Andrea Orcel: What is the biggest challenge that the European banking industry is facing just now?

0:40Nicolai Tangen: Scale and transformation. I think they combine. Scale because without scale, you don't have enough innovation, you don't have enough ability to invest in technology and in all the things that you should invest to then transform. and transformation because we tended to look at legacy banks on one side, fintech on the other side. We looked at them. We didn't consider them. But if you take the next five years, five, seven years, they're going to converge. And therefore, you need to ask yourself, can I offer the same level of client journey, the same level of client experience, with the same level of efficiency, and beat them on what they don't have, which is the clients that we start with, primary clients, and secondly, the ability to deal with multiple products and complexity.

1:35Andrea Orcel: There's been a focus on having a lot of competition in each country, right? So ideally, the competition authorities have wanted to have a lot of local competition in each country. Is that changing now?

1:46Nicolai Tangen: Well, I think local authorities have wanted local competition, and the European Union, the competition authorities, are looking at that. By and large, if you get close to 25 % market share in any area, you get blocked. So that is to prevent anyone from reducing that level of competition. I don't think that that is changing. Actually, you have some market, Germany is one of them, where the market shares are way lower than everybody else. And it's like everything in life. It's a balance. Too much market share, too much size does not support competition and a good service, etc. Too little market share and too little size prevents you from offering the clients what they want because you're too little.

2:35Andrea Orcel: What's the best for clients? What's the best market structure?

2:38Nicolai Tangen: I think a midpoint. I think for me, it's a midpoint where you have enough competition depending on the market and the client segment, it changes. But I do agree by and large that once you move over 20 % market share in any place, you need to start asking yourself if there is enough competition, because competition pushes you to be better. Lack of competition pushes you to sit and to extract value.

3:07Andrea Orcel: So is there now too little competition in Switzerland, for instance, after the merger of UBS and Credit Suisse?

3:11Nicolai Tangen: Let's say that some people could argue that. And it depends again on which market segments, because if you take the entire industry from a retail market standpoint, so individual, I think they're OK, given all the banks that they have. When you start moving on small and mid caps and large caps, so the corporate sector, that level of competition declines because of how strong UBS with credit facilities. Do we need stronger banks in Europe to make Europe more competitive? Look, the parallel I always use is if the industry, which we always talk about, is the engine, financial services, banks and capital markets are the gasoline.

3:56Nicolai Tangen: So now Europe has two things. One, it is trying to transform itself because we have never been faced with such a challenge in terms of the structure of our industry, the leadership of our products. I mean, if you go, if you travel to Spain today or if you travel to Italy, I would say in Spain it's an extreme. Most car dealers from European producers are empty and most car dealers from Chinese producers are full. And so this for us is a shock as Europeans because we had the leadership in that. And there are other industries where Germany or Italy or France had the leadership before that we don't have anymore.

4:42Nicolai Tangen: We need to transform that. In addition to that, if you take Europe in the last 15 years, we've been always lagging growth of U.S. and China. And we need that growth. So in order to do those two things, you need new policies and then you need to finance them. And I think some countries feel that they can finance them as they have done so far through government budgets, but government budgets are not enough. They need the leverage of banks and capital markets and our investors to be able to do that transformation and that financing. And I do think that at the moment, the environment, the regulation, the framework in which we operate does not allow us to do that.

5:29Andrea Orcel: Andra, not many people work with what they studied at university. At university you wrote your thesis on hostile takeovers. Yes, I did. And in September 24, you acquired a big stake in commerce bank. What was the thinking behind that?

5:50Nicolai Tangen: The working for obvious time in the same thing. Maybe I'm not as creative as people think. I am one of those very lucky individuals that identified earlier what they love to do. Hostile takeovers. No, I would say, well, at the beginning, for sure. I used to say that, you know, if I wanted to be a bean counter, I would have gone in management. And now I am in management. But at university, I was reading so much about hostile takeovers. and the attacks on RGR, Nabisco, or all of these things, that I wanted to do the same thing. I convinced a professor who was awesome to let me do a thesis on something that in Italy was not even understood.

6:39Nicolai Tangen: And then I got myself through doing exactly what I wanted. I never regretted it. But in life you evolve, and then your job evolves, and that's where I am now. On Commerce Bank, I think lots of question about that. And usually M &A is viewed like an end on itself. I think after 35 years of M &A, M &A can be a fantastic tool to strengthen a company, to catapult it further. But it can also be a doom or a bad thing because you don't do it in a disciplined fashion. M &A is a tool to your strategy. Your strategy, decide what it is. You have a vision. You have a plan. You have a strategy. You're doing it organically.

7:24Nicolai Tangen: M &A can accelerate it if it fits and if it's done at the right terms. How does Comas Bank fit into all this? So let's say, how can I put it? The night before announcing the famous 5 % stake that we bought from the German government, it was something that totally fit in our strategy. Germany, we believe in Germany. Poland, we want to strengthen that area. From a client standpoint, SMEs, this is our bread and butter across Europe. Affluent, bread and butter across Europe. And we felt we had implicit support by the government and implicit support by the then leadership of Commerce Bank. But that changed.

8:13Nicolai Tangen: In the morning, we woke up to a very different world. I think we were discussing before this call on volatility and change. And every morning you wake up and you find a different reality. We found a different reality. And at that point, the choice for us, and this is one characteristic of M &A, was one, not go forward and therefore reverse course. We felt at the time that that would be an admission that we had done something incorrect and we didn't think we had. Two, stay as is and bob around. or three, get to the maximum we could get without launching a bid and then sit and see how the situation would map.

8:55Nicolai Tangen: And we chose the third course. That's exactly what we did between the end of 2024 and the end of 2025. In my opinion and in the opinion of my board, it has been a success. Today, that stake will generate close to 800 million euros a year post-tax, growing. assuming they make their plan and maybe in an undefined period of time there will be the possibility to convert that into a combination that would make in my opinion us the most truly pan-European bank in Europe because let's say east of Turin would have market share everywhere in leadership across Germany, Italy, Austria and the seas

9:46Andrea Orcel: But why did the Germans change their mind?

9:50Nicolai Tangen: I think a number of, you know, I usually have learned in life to focus on what I control and not to speculate on what others do. I would say the following, though. I think one of the things that have changed and many things have changed in Europe is we now almost always deal with coalitions. Coalitions are not uniform. This happens in Germany. It happens in Italy. It happens in Spain. I can take almost every country that I am active is their coalition. And I would say that the part of the government that we were talking to at the time was much more liberal and market friendly. The rest of the coalition was less.

10:34Nicolai Tangen: And maybe within the government, they were less aligned than one would have thought. and when everything came to bear and there was a lot of noise about it, they took at majority a position that was against the position of what any one side had taken vis -à-vis us.

10:53Andrea Orcel: And then quite soon afterwards, you launched a bid for Banco BPM. Yes, we did. So you're a boxer. Does it make sense to box against two people at the same time?

11:06Nicolai Tangen: For us, it was there were two things or the following consideration. The first consideration is that by the time BPM emerged, we were absolutely convinced that while we would convert our derivatives and everything else into a 30 % stake, we would not launch a bid in Commerce Bank in the foreseeable future. So while there was all the financial planning of getting to 30 % and converting the stakes, there was no integration, nothing industrial. We would just sit on a financial participation. So it wasn't boxing with two, it was boxing with one. And then so we said, if actually, if now we launch BPM, by the time we close the transaction and then we integrate it, we will be able to go on the second thing.

12:00Nicolai Tangen: Because in Italy, differently from Germany, we felt we would, obviously, our evaluation did not come true. We would close the transaction in nine months, integrate it in 11, and it was in Italy. This is one of the advantages of Unicredit. We are active in 13 markets with 13 legal entities, 13 boards, and 13 everything. So the Italian leadership team would run. The other 12 markets would not even notice. And sequentially, if the condition were then right, we would be able to box the second boxer, as you call it. in another market with another team, with another framework, and that was possible.

12:44Nicolai Tangen: So one, it was that. Two, it was, frankly, shareholders. We could not at least try to participate in Italian consolidation, which is one of our two main markets, if it was going on and just say, well, because I'm busy there, I haven't done that and the market has consolidated away from me. At least we needed to try. And therefore we tried. And so these were the two. And at the time, and we had waited for three and a half years, the terms, the financial terms were aligned. So we could do a transaction, which at the time, even if we reviewed up for premium, we could bring in and look at our shareholder and say, well, strategically, you know it is because you always wanted me to do it.

13:39Nicolai Tangen: And term-wise, it could return on investment 15%, which at the time was about two points above my share by back to adjust for risks, and it would strengthen our business in Italy. So that's why we brought it in.

13:53Andrea Orcel: When you look into the future, do we need banks in their current forms?

13:58Nicolai Tangen: I think as we started with this, banks will morph. So it takes some... Morph into what? Into... So let's say that the business model is changing. The way we do business is changing. Translated in financial terms, maybe 10 years ago, you saw a bank, commercial banks, legacy bank, 50 % cost income ratio, they're solid, they're good. 12%, 13 % return on equity, they're solid, they're good. Today, the same terms would be 40. In my opinion, 40 % cost income ratio and probably...

14:45Andrea Orcel: And just to explain, that means that the cost of 40 % of your income...

14:48Nicolai Tangen: Those mean that the cost of 40 % of my income. and the return on equity, which was about 12%, I think today you need to have an ambition to be in the high teens, so 17, 18, et cetera, et cetera. So the industry, if you want to look at it positively, is becoming more appealing. But it requires rethinking how you do things. You're not sitting back and continuing to operate on the business model you did 50 years ago, 30 years ago, 20 years ago. You need to rethink the organization, the process, the way of working, the technology, the AI, and change and change and change.

15:26Andrea Orcel: So when you then take Unicredit and you sit in your chalet and you think about Unicredit 10 years from now, just what does it look like? What is it?

15:36Nicolai Tangen: Well, if you look at it from a client standpoint, and for a second, let me take individuals, families. I always say that to our people if you have a session on Netflix or on some other of those platform that we're so accustomed to be on and then for any reason you need to switch off that and move on your bank do you have the same experience because if you don't you will not survive in five years So the client experience needs to evolve to what now, in many other facets of our life, we consider the requirement, the bar, the expectation. And that requires a complete rethink of the way we operate, especially on the front end.

16:27Nicolai Tangen: Tell us how you're going to change it. So I think it's block by block. So obviously banks are regulated. I can't just change it. It needs to make sense. The regulator needs to approve it. But for instance, in my opinion, you know, you start and everybody says they do that, but they don't. The client needs to be at the, you need to flip the organization. That's what we did. The client needs to really be at the center of everything you do. So when you think about the way you do an onboarding of a client, when you think about how you grant a loan to a client, you need to start by thinking how will the client react to that.

17:09Nicolai Tangen: I'll give you a very example. very simple example consumer finance you're going to shop you want to buy something at uni credit if you were not pre-approved and we didn't pre-approve many people it would take seven days is that an effective way to support a client it's not today it takes 13 minutes if you're not approved before and most of our clients are pre-approved before so it doesn't take 13 minutes They know their limit. They can spend and they can go. In order to do that, it means my process, which was 23 steps, needs to become two. My credit models needs to be online all the time to assess the risk of that particular client, segment, etc.

17:54Nicolai Tangen: My product needs to be targeted to what they want. And I need to be in a position to react that quickly. Because otherwise, I can do it fast, but everything will blow up at the back. In order to do that, the entire thinking of how we do consumer finance has changed top to bottom. It has taken us three years. And the same will apply to mortgages. Mortgages, for example, you as a client, you don't need an answer in seven minutes. But you do want an answer in a week. If you are really keen to buy a house, you want to know if you have the financing or not in a reasonable period of time to move. And I can combine that.

18:32Nicolai Tangen: Let me see another one. I give you a consumer loan seven minutes and I know from where you're spending that you're buying a trip to Egypt. Do I offer you flight insurance, travel insurance in general? do I offer you discount at my clients who are all supermarket chains or whatever to get, I don't know, boots or the right casual wear. Can I do that? Because if I can do that, then I have financed your dream and I am suggesting to you other things to close the experience. How will AI change this further? Well, AI changes that accelerating things. So number one, what AI does, and this is what everybody's focused on, is it reduces cost massively.

19:29Nicolai Tangen: So I'll give you one example. But are you seeing that already or is it still to come? I think what I would say, honestly, certainly for Europe, I'm not in the US, most banks with very, very, very few exceptions, if any, if you ask that question at the end of 24, they would tell you something about AI, but the reality is it was a curiosity. If you ask them today or at the end of 25, they all talk about it. They all know it's a big, big critical item. But now the question is how do we harness it? And the first reaction that you see in many cases is, and I read it all the time, I gave co-pilot to every one of my employees.

20:18Nicolai Tangen: I sent everybody to a course. I did this. But that AI, while it will make the life of your employee easier, is that changing the way you work and is that transforming and extracting synergies? No. That's what I wanted to say. So now some banks and some are ahead of us, but we're trying to catch up quickly. So if you look at a credit file, very simple. You're a big company. You want to loan from us. I need to gather information from your accounts, from the internet, from a number of sources, create a credit file, all of the data, reclassify it into my spreadsheets, and then apply my metrics and tell you if you fit or if you don't.

21:00Nicolai Tangen: I'm simplifying, but that's that. Usually, it takes six weeks for one experienced credit officer to do that from zero to the end if all the data is available. We did a pilot together with one of our partners. We developed an AI engine to do the same. It took us one week to develop the engine. and they could do on one where we had taken six weeks to prepare the fire, they could do it in 14 minutes with 98 % accuracy. And this is the first trial. It will become 100 % very, very quickly. So what does that tell you? It tells you that if I take the credit process of a bank, 80%, if not 90 % of the people in the large caps prepare files.

21:54Nicolai Tangen: So what are you going to do? Because now what? Are you eliminating 90 % of the people? The way of working changes. You need to manage the social impact. In many countries where I am, I cannot do that if I don't reskill them. So it's progressive. So what do you do? And so it's that. So, for example, we have since 22, end of 22, started a reskilling unit. Usually we have about, well, since then we've done about 650, 700 people. were people that are not living, but that are good professionals, but just their areas are getting disintermediated. So what do you re-skill them to do? To move to other things where we need more of them.

22:39Nicolai Tangen: I think, for example, in my opinion, banks have curtailed too much the human touch to the client. So I may want everything online, but if I'm taking a mortgage of 250K, I want to see a person in front of me.

22:54Andrea Orcel: So do you think banks generally will not reduce cost as much as people think?

22:59Nicolai Tangen: I think if you don't, in five or six years, you're not here.

23:04Andrea Orcel: Do you get people to change as quickly as you thought they would change?

23:09Nicolai Tangen: I have been pleasantly surprised at Unicredit. But it is not you get on a podium, you do a presentation, but probably some very intelligent consultant has prepared for you. you pontificate for an hour and then you step off and they're all going to do it. It doesn't work that way. Firstly, you need to co-opt them in realizing that this is going to happen with them or without them. So the choice is if we do it at the beginning, we have time to reskill you. We have time to change and we can manage our pace. if you wait to hit the wall, you're all on the street. Because this is happening. One way or the other, it is happening.

23:58Nicolai Tangen: Once you have that conviction, then how do you manage and over how long in order to be able to manage at best the balance between being fast enough, but on the other hand, not doing things that trade unions and honestly society will not allow you to do. So can that be done? I think it can be done. We have done it again and again at Unicredit. And I find that over time, if you provide alternatives and if you treat people correctly, the outcome is more positive than people expect.

24:34Andrea Orcel: Another technology change we are seeing is, of course, stablecoins, blockchain and so on. How is that going to fit into your business?

24:42Nicolai Tangen: Well, you know, if you had asked me three years ago, I would have said you, I don't really know. Today, I think we are, I think it is a priority. I think if you look at the modernization of markets, is it bonds? Is it equity? Is it contracts for mortgages? Is it this? is just a change in technology, eliminating intermediaries. Blockchain, that's what it is. You need to be at it. And the other thing is, if you're on blockchain, you need a means of payment. And it's either a cryptocurrency, which we only get involved to the extent that our clients want to do it because we think it's too speculative for a commercial bank like us.

25:32Nicolai Tangen: So we support it, but we're not using it. Stablecoin is fundamentally because it is a lot more stable. That's why we joined a consortium of banks in Europe, Kivalis, to launch stable coin based on euros because that's another threat for Europe. At the moment, if you look at stable coin, only US dollar. So that would mean that if you go on blockchain and you need a means of payment, you're risking to be completely disintermitted by US dollar. And the Americans love stable coin because what is backing them is the dollar and your treasuries.

26:10Andrea Orcel: And when will we have a European stable coin?

26:13Nicolai Tangen: We're aiming to be out with a first stable coin, meaning that it's working by the third quarter of this year.

26:21Andrea Orcel: Okay. Any other trends in financial markets which make you nervous or worried?

26:30Nicolai Tangen: No, I do think maybe one thing, and we were discussing it at the beginning, if you come from having lived, let's say, the pre-COVID area, especially in Europe, you're talking stable interest rates and low. You're talking cost of risk, so default, which are very low, because interest rates are so low that they are very low. You're talking very limited to no inflation. You're talking, you can look at the next three years and very easily we'd be within one standard deviation in terms of projection. So you budget, you break down the budget in pieces, you have processes, you tell everybody what to do, and you track that.

27:17Nicolai Tangen: Today, diametrically opposite. I remember that we launched Unicredit Unlocked in December 2021. Our stock price reacted very positively, very detailed plan. It had taken us nine months to do it. A month later, Russia invaded Ukraine and the entire plan went in the bin. And since then, it's the same. We have interest rates which are volatile, geopolitics that are volatile, technology and AI that are changing the way we work. All the assumptions that we make, we wake up the next morning and they are changing because we see new things that we didn't expect. So now, in my opinion, to run a company, to compete, you need to understand what is the general direction of travel and have such a deep understanding across your organization, top to bottom, of what is your vision, your strategy, your plan, and that direction of travel, that the sub-teams, be it country or subset in countries, retail, corporate, et cetera, can constantly adapt and rejig what was the original plan to get to the same direction but adapting to a changing environment.

28:36Nicolai Tangen: And the style of management is diametrically opposite because you're constantly looking at how they have adjusted and seeing if it's going in the right direction rather than monitoring if they are applying what you thought they would apply at the beginning. And that adjustment is absolutely critical. And unless the volatility we see around us goes down, and I don't think it does, I think this is a complete different way of running things. And if you don't do that, the repercussions are very difficult. But to do that, the level of empowerment, the level of trust, the culture that gels together your individuals, and the understanding of where we're going, why we're going, and what are the levers that they can use, and the comfort of your institution that if they fail within staying in the metrics you gave them, it's okay.

29:27Nicolai Tangen: They just need to flag it, regroup and start rather than I'm going to penalize you. It's massive. And this is a cultural shift that for banks, which are very sclerotic, is very difficult to do.

29:43Andrea Orcel: How important is grit in your life?

29:46Nicolai Tangen: very important. It is probably at the essence of what I have always believed. I think some people, not everybody is equal. Some people are born more gifted than others, and we see that every day. But by and large, I think that in a number of situations, I would say in a majority of situation, people that are at a certain level maybe not the most talented in the class that learn that fail and learn how to deal with failure they learn how to learn from failure how to pick themselves back up and how to go further I think we share

30:32Andrea Orcel: a favorite book, Grit by Angela Duckworth and we did have Angela Duckworth on the podcast so you should listen to it

30:39Nicolai Tangen: I think she's awesome

30:41Andrea Orcel: Where did Grit start for you? What was your... You didn't have a particularly hard upbringing, right? I mean, you were a middle-class kind of guy, right?

30:50Nicolai Tangen: Well, first of all, I went through the French Lissé. Which is tough, huh? Still today, the French Lissé is very Cartesian. And the style of teaching, I don't know today, but in my times, it was very hard. You needed to deserve the place you had at that chair, at that desk. and therefore taught you to regroup and do better because otherwise you wouldn't survive that kind of style of teaching. But in general, it suits me. Why? Because I believe that the impossible is possible. Somebody told me either the impossible is impossible until it's done or if it's impossible, be more creative and you will make it possible.

31:37Nicolai Tangen: and I think human beings are here to improve themselves and grit is what tells me that I may start behind but through determination, resilience, consistency ability to not take a challenge or setback as a disaster that does not mean you don't react badly, you do but then at some point say right, it happened Why did it happen? Pull yourself out and start again. You evolve and you become a much better individual in whatever you set your mind to do. And for me, going through this life and thinking, if I'm determined, if I really want it, if I work at it, I will be able to get there with a lot of effort.

32:25Nicolai Tangen: But I will. Then it's a journey that is worth going through. And that's, for me, it's at the base of a lot of things that I believe. You speak most of the European languages. Not German, but I do Portuguese. My wife is Portuguese. At least I understand that she would tell me that I speak a derivative of Spanish. But I do speak Spanish. I do speak French, Italian, English, and a little bit of Portuguese.

32:51Andrea Orcel: What do you, this kind of pan-European place, what does it do to your thinking?

32:58Nicolai Tangen: It's actually quite interesting. And my wife and my daughter always point that out. I still count in French. If there is a mathematical problem or I need to correlate things and I speak loud to hear myself on the logic, it's always French. I do presentation in English because I've been here for 35 years and therefore all my professional life has been that. Maybe I enjoy my life and enjoy communicating in Spanish when I am on holidays. So they have marked different aspects of my life and they shape what I am altogether. What kind of temperament or psyche do you have?

33:42Andrea Orcel: Where is that from?

33:43Nicolai Tangen: You can probably, you can call it determined, you can call it ambition, you can call it dysfunctional. And what parts of it is dysfunctional? So I think for me it's that. So, for example, a lot of people kept on asking me, what about work-life balance? And I think that statement assumes that work is bad and you need something else. And if I am doing the job I chose with the people I like and I am on a journey that is exciting, it's almost like it's not work. I'm actually enjoying the journey with the people I'm doing it so I will naturally tilt towards more work. And I do think that also these things move in life.

34:34Nicolai Tangen: So if you had known me when I was 25, yes, I was working a lot. Today I'm still working a lot, but because I have a daughter who is 15, my priority has moved. So this work-life balance for me is choices. But what is a lot? What is it to work a lot? Well, I think when I was, I still went through the boot camp of investment banks in the US when I was 25, where if you weren't doing three all-nighters a week, did not take any holidays in your analyst years, and weren't working six, if not seven days a week, it was, you were not through the boot camp at the end. I don't think that that's necessarily the right thing to do.

35:15Nicolai Tangen: Do you work your people really hard? I think the work your people really hard, I don't believe. What I think is because I worked really hard, I dragged them. So I think, and if you ask many of them, when they need time, and many times I ask them to take time, I am the first person who will never pick up the phone to call them or to ask for anything. But I do think that if we are on a journey together and we're trying to get there and they see that I am all in, they choose to be all in. Now, you could say, yeah, but by being all in, you're dragging them. I understand that. So to an extent, it is my responsibility to see if some others are going too far and I stop it.

36:07Nicolai Tangen: But I don't demand people to be at a certain time in the office until another time. For me, there is a task to be done. We're all doing it together. You're doing this part. I'm doing that part. Let's get it done.

36:19Andrea Orcel: Is it important for you to be liked? To an extent.

36:23Nicolai Tangen: I think there are you, and especially when you get in more responsible positions or more leadership positions, it is very important to keep your feet on the ground and remind you every day that you're no different. You're just having a different role. But at the same time, and you need to be fair to people because you wield power that they don't have. And you need to really think, which I, what I forced myself to do, how would I feel if that was done to me and not dismiss it? So we talked about M &A. M &A takes a completely different meaning in that context. When you are 25 years old and you're doing a spreadsheet, it's numbers.

37:12Nicolai Tangen: when you are 62 and you're evaluating what you're going to do with people. It's a completely different thing to do. But I do think that, unfortunately, life is not fair. And unfortunately, life is tough. And if you're leading an organization, there are decisions you need to make in the collective interest. And not taking those decisions because not everybody thinks that they have a right decision is wrong. and I do believe and I have seen it again and again and again that even the people who disagree with you prefer that having listened to everybody you say right I listened to everybody this time this is it and we're going in that direction so it's not important for you to be liked no not in the way you define it then I would love to be liked in many cases you challenge the establishment in many ways right I don't know if you can say that But I would say more that for me, the other thing that is important, it happened to be already once, when I am through this job, I want to be in a position to look back and don't have any regret.

38:23Nicolai Tangen: And that means, have I done everything that I could and I thought right at the time to do the best by my organization or by what it is? And did I leave a better organization as a result?

38:35Andrea Orcel: and so i think i think if we look at your results so far when you became ceo five years ago share price was eight and today is 70 and you paid seven in dividends so 10 times yes so that's like totally outstanding right um yes but i would tell you one thing if you look at the

38:55Nicolai Tangen: team so the 69 000 people that are unique credit every day they live and breathe that yeah they They're so, it's almost like this gave them back their pride. When they talk to clients who say, you know what? Thank you, because I'm financing my holidays with the dividends that I'm getting from Unicredit. They're riveted to have that kind of interaction with the client. So there is an element that is not just performance, is what that performance means in terms of achievement both sides.

39:25Andrea Orcel: Where did you learn this? Because you've been working at places like Goldman's, BCG, Merrill Lynch, UBS. So tell us, where did you learn to make a bank go up 10 times?

39:37Nicolai Tangen: I think you go back to if you are very focused, if not obsessive, on what does excellence look like and how do I get there, number one. Number two, if you are ready to listen to people who know a lot more than you do. So I arrived at Unicredit. I have done, as an advisor, commercial banks for 35, 40 years. But I'm not a commercial banker. I'm an investment banker. Most, if not all, of the good ideas that transform Unicredit come from listening to people in the branches and in the trenches in general. So I think if you want to achieve excellence and you have a humility to listen to people, and then over time you can bring that together into so that means this work which doesn't work we need to pull it together this is the strategy we're going to do you will find that it's a lot the process is hard but the outcome is easier and the other thing that is very important is that because you went through that process and because the ideas are by and large coming from people who feel that is my idea and I'm seeing it in action.

40:54Nicolai Tangen: They're embracing it 150 % and want to take it on the other side. So I do think that these are generic things that you have. The rest is, I tend to maybe be a little bit obsessive. I think about banks all the time. My wife would say that in the first trip we took, we went to Mexico. And before we even went to see Chichen Itza, I went, I took her to see a branch because they were the most modern at the time to see how they function because I like the industrial makeup of how it goes from the client all the way back. So it's a number of things, but ultimately you need to love what you do. You need to have that aspiration in order to get it done.

41:41Andrea Orcel: When you make decisions, how much is instinct or pattern recognition and how much is analysis?

41:48Nicolai Tangen: So I think it's both. I would say the following things. The first thing is maybe that helps. Having witnessed trading for a large period of my life, we used to say that the outstanding traders are right 55 % of their time, not 100, and not 90, and not 80, 55. But they're very good at cutting their losses on that 45%, understanding what was wrong, they cut for the last thing with discipline, they start again. So that has always defined my view that speed is important. So yes, you need to get as many elements as possible, but there is a point where you need to take the decision and you will never have 100 % all the facts.

42:37Nicolai Tangen: Is there an element of gut feeling? Yes, by definition there is. when you are taking decision on thorough but incomplete information at speed. By definition, there is an element of gut. There is an element of, I would say, I don't know if you want to call it discipline of humility, of saying, I know this may not work, so let me observe it, and then let me be ready to acknowledge if I made a mistake. I cut it off, I start again, you cut your losses. not it's a decision that the boss made so it cannot be wrong because then you dive into a situation that is not good and i think if you do that again and again and again by iteration you

43:20Andrea Orcel: get in the right parameter at the right speed when you compare how you spend your day now compared to let's say three and five years ago how how has it changed i would love to tell you that it has

43:33Nicolai Tangen: changed. I think the element that has changed is that I know the people I work with a lot better. And let's say when I arrived, by definition, I was relatively cold because I was not emotionally invested. I arrived to do a job. Today, I am emotionally invested. I think - What are the implications? The implication of that is positive and negative. There are certain decisions that I need to force myself to take because I know the consequences and I know the consequences they have on people that I know the face of. I know what they do and I know how they're going to react before it was easier. At the same time, it feeds energy because it feeds you and into, at least for me, I can't let them down.

44:26Nicolai Tangen: We need to get that done. We can get that done. What does it take to get that done? So it gives you an energy and a determination that otherwise you don't have.

44:40Andrea Orcel: You are known for spending more time on capital allocation than other CEOs. Tell me about how you think about capital allocation.

44:46Nicolai Tangen: Well, I would say that I'm known for a lot of things. Most of them are not true. I would say that if you asked my team, I spend most of my time, let's call it on the industrial side of the business. How do the process work? How do the technology work? How do the way of working work? Can we change the organization to make it better? Why that product rather than that solution, et cetera, et cetera. So I go a lot in the details. So one thing is to ask people who know more than you, the classic subject matter expert on the branch risk or whatever. Another thing is to be oblivious and delegate everything because everything is okay.

45:37Nicolai Tangen: So I try to understand everything that occurs. It is true, however, that one element that banks, and this comes from my advisory career have had always underestimated until recently is that we have cost operational and we have cost of equity with a cost as well so not factoring in that my cost of capital is 9 10 11 or 12 percent or when i started 17 is wrong and therefore in the decision that we made we prioritized the deployment of capital, which is a scarce commodity. It doesn't belong to us. We're entrusted by shareholders on that into the places where we could extract the best return. It started with that.

46:30Nicolai Tangen: Then it became, how can I make the places where the returns are lower better performing so I can deploy the capital there as well? And therefore, capital allocation became a mantra for driving a business that both grows profitably. Because everybody talks to you about gross or returned. If you look at the plan we have now that is no news, what we're saying is we want to be of the optimal intersection of gross and distribution. To do that, you need to have maximization of profitability. and therefore you need to seek a growth, but we call it quality, a growth that seeks to defend margin, to go in the places where your competitors don't go for any reason, too complicated.

47:23Nicolai Tangen: They don't have the infrastructure. They don't have the knowledge. It's too painful to create value and find that. And obviously when we look at it from a financial standpoint is what is my cost income ratio in that area? So how efficient I am. And secondly, how much capital am I using? And is that capital being rewarded above what it costs me or not? We look at that and we rank the businesses. But then we go back on those businesses and we say, how do we run them? Can we change? It's like building a car. A process, step, step, step, step. Everything is a step. Can we change that and automate it?

48:05Nicolai Tangen: People tend to automate. First, you need to redesign the process. Then you need to automate and use AI. How have you redesigned the corporate culture? So I don't, so this is a big question because I believe that culture is the linchpin of everything. Everything. You have the right culture. Eventually, you're going to win.

48:31Andrea Orcel: So when you came in the first day and you sat down and talked to people, What part of the corporate culture do you think, wow, I think we need to change this?

48:40Nicolai Tangen: So I would say this. First of all, changing completely a corporate culture is very difficult and takes an extremely long period of time. How long time does it take? Changing it dramatically, more than a decade. Because inevitably, to change it, you need to purge the people who are not in that culture. And if you have 80 ,000 people below you and most of them are not in that culture, it's going to take you a long, long, long time. So I don't think you can impose your culture. The way I look at it is you better go in a place where your way of principle value culture matches. Maybe not 100%, but to a large extent.

49:27Nicolai Tangen: Otherwise, you're going to have a very difficult time. What did I have in Unicredit? I think I knew Unicredit from before. I think they always stroke me as living and breathing Unicredit. They adore Unicredit. We say in Italian they wear the Unicredit T-shirts. When they're at work, when they're not at work, for them it's an element of pride. They're part of that team. Not many institutions are like that. Coming from investment banking, not many institutions are like that. I have people who have been there 20 years, 25 years, 30 years, and they love to have been there for all that time. Second thing, they used to be the team to beat in the early 2000s, and they were accustomed to be the team to beat.

50:17Nicolai Tangen: They were fast, innovative, aggressive. they were not maybe with the benefit of hindsight it's always easy they were not harnessed in a box that prevented them from bringing that aggression and that speed etc to things that then converted in problems but the DNA was a winning DNA and I felt looking at the outside that over the retrenchment that they had to suffer and to a certain extent I would call it almost humiliation, to go from the top to the bottom. They still had it in them. And it was just a question of putting them back in a position to achieve it. So rather than changing the culture, what I did when I arrived is I spent nine months contributing with a small team to interviewing directly or indirectly about 20 ,000 people, 30 ,000 people of the 80 ,000 that we had.

51:19Nicolai Tangen: try to determine what were the principles and values that made them tick. Very interesting. Integrity, very many people. I would say an organization that doesn't talk to you about integrity, not very likely. Second, already, ownership. For a commercial bank, it's quite a lot. And thirdly, care. Coming from investment banking, I didn't expect that to be there. it was the first most voted tenant that they wanted to have.

51:50Andrea Orcel: Because investment banks don't care, you mean?

51:52Nicolai Tangen: Well, because probably care about your colleagues, care about your clients, care about a lot of things that have to do with the organization. I think investment banks are more individualistic than a commercial bank like this was. And I think on those pillars, we started saying, OK, so now we are going to have, do we all agree with that vision? Do we all agree with that strategy? Do we all agree with that plan? Yes. Do you feel passionately about it? Yes. Then we empowered them back. We had a very top-down command and control structure. Now we are probably one of the most empowered, bottom-up organizations.

52:35Nicolai Tangen: But in order to do that, they need to believe in the vision, the strategy, and the plan. They need to be harnessed or structured around KPIs that they believe in and they can understand and one culture. So fundamentally, I talked a lot about the subject matter expert in the branch, in risk, et cetera. They are much better than I am to doing their jobs. However, I need to understand that when they make the decision, will they have in mind the same concern, principle and value that I have in making them? Because they may be very good, but if they go in the wrong direction, what? How do you control all of that?

53:19Nicolai Tangen: And so culture is what makes you confident that 95, 98 % of the time, you're going to have the right outcome. Is there anybody from outside the world of banking which have inspired you?

53:29Andrea Orcel: Any other discipline?

53:32Nicolai Tangen: Outside the world of banking. Well, I go back a long way because I am a fan of when I was a child. Maybe that shaped me. A Roman general that was called Scipio who did the impossible. At 26, he was leading the Roman legions against Hannibal in Spain. And then he went and took back, I don't know how you call it in English, cartago, I think, and beat Hannibal with his elephants. It was all about strategy, empowerment, taking the best of individuals, esprit de corps, and doing the impossible.

54:07Andrea Orcel: More recently— Is that how you've beaten the other elephants out there?

54:10Nicolai Tangen: Well, you know, so put it this way, you're a Roman infantry with a nice little shield, and you're there, and they charge on you with an elephant. and you're told it is possible to withstand the attack, it would be classified as impossible, but he found a way to do around it. So for me, it was that creativity. I mean, it's suitable because you were actually born in Rome, right? I was born in Rome.

54:40Andrea Orcel: Okay. And it's one of the things that... So it's all coming back.

54:43Nicolai Tangen: Huh? So it's all coming back to that. It might, it might. But in the more, let's say, in the more modern world, I had, let's say, CEO, as I was blessed to be an advisor, that taught me a lot. Nobody's perfect, I'm not, they were not. But Emilio Bottin at Santander taught me a lot on humility, striving for improvement all the time, how to galvanize people. Stan O 'Neill and Merrill Lynch meritocracy empowerment how to make people take ownership of things then all of them including me

55:24Andrea Orcel: these were CEOs you worked with when you were an advisor right so you had Stan O 'Neill I was

55:28Nicolai Tangen: working for him as I was working at Merrill Lynch Emilio I was an advisor yes so you had a unique

55:35Andrea Orcel: insight into these people now if you were to just your leadership principles just the most important ones that you adhere to?

55:45Nicolai Tangen: So leadership principle, I think there is a quote I like a lot from Admiral McRaven, who said, if you want to conquer the world or change the world, start by making your own bed. And he was saying, I don't mind being late for an important meeting if it means I need to finish my own bed. What is he saying in that? He's saying, number one, do small things well before you have an ambition to do big things well. Small decision, big decision. Second thing that he's saying is this brings you back to, as I said at the beginning, both feet on the ground, humility, etc. etc.

56:28Nicolai Tangen: This leads into whatever organization, especially of large people that you have around you, you need to listen. You need to be part of them. You need to spend a lot of time with the people you lead, understand them, show that you're not a Martian from out there, but you're one of them, that you value them, explain, listen to what their questions are, get them to guide you on some question that you may have and be humble enough to accept the challenge not as an attack on you, but as something that will make you stronger. Then there is, and so these things, I think, and then realize what we said before, that your job is just one part of the puzzle of bringing it all together into something that they share, that they can identify, that they feel passionate about, and then drive them towards excellence.

57:24Nicolai Tangen: Because at the beginning, the impossible is this guy is asking too much of me. But then it becomes, wow, you know, first of all, many times what I thought was impossible, I did. That gets you to re-rate yourself in a way that makes you almost walk on air. and even if you fail, usually you're ahead of the people who just aim to arrive to the median or to the possible.

57:50Andrea Orcel: Where does your drive come from? Who do you want to show?

57:54Nicolai Tangen: I think to a large extent myself. I don't like, contrary to what people believe, the public recognition. I like to think of myself. I set an objective. It was very hard and you know what? I got there. And I got there, and now I'm going to set another one, and I will get there. For me, it's self-satisfaction to a very large extent. Your mother worked for the UN. You're right. You did your work in Rome. Has it been important for you to make her proud?

58:26Andrea Orcel: Very.

58:26Nicolai Tangen: Or your father? Very. Very important because from a young age, diversity. I was exposed in Rome both because of school, because Rome is the only city in the world where you have embassy and consulate to the Italian state, the UN and the Vatican. So it's full of public servants from every part of the world. And they tend to gravitate to a large extent on international schools. The French Lissé was one of them. So diversity of views, diversity of religion, diversity of belief. but we're still good friends. That did shape. And I was, I grew up in a generation that thought about openness, attracting people who were different through demonstrating that there was more we could do together, et cetera.

59:25Nicolai Tangen: So I'm not living very well the world of fracture separation distances that we have today. How do you relax? how do i relax um today i spend time in order with my wife and daughter or with my dog or i do sports because it takes my mind so we talked before about boxing because while you're doing it your mind needs to focus on your adversary or you're gonna get punched and reminded very quickly that you need to focus on what you're doing. But that forces me to completely let go of everything else around me. And that for me is luxury. I don't get to do that very often. And so physical exercise or endeavors where I need to focus.

1:00:20Nicolai Tangen: I love skiing, open air with my family, both on water or on snow. Yeah, this is what I do. I don't do much more. What do you read? I read from time to time. The last book I recently reread because I read it a long time ago. There is a book by a Spanish author actually called Postergillo who wrote this book about the cursed religions, which is Ciprian invasion of Africa. And obviously, it's a story as well as historical facts. It's very good from an historical standpoint, but it's a story. And it's good to get my mind away from everything else and get absorbed in something completely different.

1:01:11Andrea Orcel: What is your advice to young people?

1:01:15Nicolai Tangen: That's always very difficult. Advice to young people. I would be generic. I would say, number one, take the time to choose the journey, the job, the trajectory that you love, that motivates you, that gets you there. I remember that being in investment banking, which was a choice, as you remember, that I did because I loved it. People were asking me, first question, when will I make my first million dollar? And my first answer was, if that is why you chose it, very, very hard to get to that point because you need to go through boot camp. There's no money that is going to compensate for that if you don't like it.

1:02:01Nicolai Tangen: So number one, make sure there is not what your friends like, what your parents like. Make sure the choice is your choice and you really like what you do. The second thing is choose to do it in organization and with people where you identify. When we're all young, we think that a bank is a bank, a company is a company. Banks and companies are very, very different. I worked at Goldman Sachs. I worked at Merrill Lynch. Arguably, many, many people would tell you Goldman Sachs is a materially better company than Merrill Lynch was. One went almost bankrupt. The other one didn't. but for my character, Merrill Lynch was better because I thrived in that environment, and at Goldman, I didn't.

1:02:53Nicolai Tangen: That does not mean Goldman is not an exceptional firm, and my best friends are still there. Fantastic, but where you do it is very important because that kind of company will attract people with whom you have something in common or not. And if you have those two things, then the rest is going to take care of themselves. The other thing is, do have an idea of the direction where you want to go, but don't think it's going to happen the way you think it's going to happen. Because careers are not straight line, they're jigsaws. And actually the failures are probably as important, it's not much more important because of what we were saying about grit, than the wins.

1:03:40Nicolai Tangen: you don't you're satisfied with win you don't learn anything from wins failures you learn a lot about yourself and about what to do better so if you have those things and then i would say more recommendation i hope that the generation that is coming into the ranks today doesn't take no for an answer does what today seems impossible which is getting the world to go back to a center that is from which we are going away, that I think as a generation, if we don't do something, we're leaving our children in a situation that is not as good as the one we found when we were their age.

1:04:23Andrea Orcel: Well, André, it's very clear that you know where you're going, that you don't take no for an answer, that you love what you do and you do it with people you like. Absolutely. It's been great having you on.

1:04:31Nicolai Tangen: Thank you very much.

1:04:37you