Dear All,

It was a pleasure to meet all of you at the 4th edition of our European Investment Conference (EIC) in Munich. Let me thank you for your attendance and active participation which made this year’s conference once again a tremendous success.

I am very glad we could offer you again this unique platform to network and exchange views on Europe and the capital markets with corporates, financial institutions and investors from Europe and beyond.

As a pan-European commercial bank with a fully plugged-in CIB we provide unique access to Western, Central and Eastern Europe. Our commitment to support issuers and investors is confirmed by a long and consistent track record as most active player in the Euro bond market, since 2012 and as the largest lender in syndicated loans in our core countries in 2017 so far, in addition to the recognition as leading trade finance house.
These results we take as a sign of your trust for which we thank you sincerely.

The following brief report is intended to give you an overview of the key topics explored and discussed during the day in all workshops some of which you may not have had the chance to attend.

We very much look forward to seeing you again at the 5th edition of our EIC on Thursday, 27 September 2018.

Olivier Khayat
Co-Head of CIB, UniCredit

Capital Markets Round Tables

“The new generation of bank senior debt instruments –

De-mystifying The Why’s,

The What’s and The Who’s”

Moderated by Isaac Alonso, Head of DCM Financial Institutions, UniCredit
Ciaran Callaghan, Senior Financial Analyst, Amundi
José Antonio Soler, Global Treasurer and Head of Financial Management, Santander Group
Alessandro Brusadelli, Head of Group Finance, UniCredit S.p.A.

The purpose of the panel was to illustrate (i) the reasons for the existence of the new generation of bank senior debt instruments and (ii) the implications for the management of bank capital. Also investors’ judgment on this new asset class was debated in detail.

After implementation of CRR and CRD IV in 2014 (the so called “post-Basel 3 era”), which had already a significant impact on quantity and quality of banks’ regulatory capital, the banking sector had to cope with the new “capital” components called “Minimum Requirement for Own Funds and Eligible Liabilities” (MREL) and the Total Loss-Absorbing Capacity” (TLAC). While MREL was the European measure to guarantee bail-in effectiveness by requiring banks to hold enough equity and liabilities that could, in case of a resolution, be reliably and feasibly bailed in, TLAC was the global answer addressing the request to avoid State sponsored bail-outs in the future.

These new rules created two new challenges: (1) A complete reshuffle of the liability structure as the former pure funding senior bond instruments mutated to a funding instrument with “capital importance”. (2) In order to comply with certain legal eligible criteria, the new senior instrument either needs to be issued on a bank holding level (HoldCo Senior) or domestic laws need to be amended in order to statutorily create this new asset class.

Both issuers acknowledged the harmonisation of European national creditor hierarchies, which paves the way for a European Senior Non- Preferred (SNP) market segment, as the achievement of a first milestone in this new regulatory universe. From an investor’s point, the clear general investment preference for HoldCo Senior bonds was outlined as at this stage they are easier to understand compared to Senior Non-Preferred bonds due to the newly created ranking of these instruments. Nevertheless, besides the new creditor hierarchy there is a substantial increase in analytical effort for investments in bank debt instruments by parameters like future potential recoveries, timing and supply expectations.

Neither Santander Group, nor UniCredit Group have the possibility to issue HoldCo Senior bonds. While for Santander, the legal developments were too slow, the Global Systemically Important Banks proactively opted earlier this year to issue contractual Senior Non-Preferred bonds due to the absence of the relevant Senior Non-Preferred law in Spain (which is meanwhile implemented) – in order to have enough flexibility with the new MREL / TLAC requirements.

Due to its strengthened capital ratios, UniCredit Group, in contrast, decided to wait for the implementation of the Senior Non-Preferred law in Italy, which is expected in October / November this year, according to Alessandro Brusadelli, and is thus still due to issue its first Senior Non- Preferred bond. It will need several years until the reshuffling of the liability structure by Senior Non-Preferred issuance, which substitute plain-vanilla senior unsecured bonds, will be finalised. However, the still not finished legal development of MREL / TLAC legislation, continues to represent the biggest challenge for bank capital managers. So, there are certainly more interesting panel discussions to come.

„Green and Social Bonds –

Opportunities and Challenges for Issuers and Investors“

Moderated by Antonio Keglevich, Head of Green Bond Origination, UniCredit
Marie-Anne Allier
, Head of Euro Fixed Income, Amundi
Bodo Winkler, Head of IR and Sales, BerlinHyp
Jesús Martinez, Head of Treasury and Finance, Iberdrola
Rodrigo Robledo, Head of Capital Markets, ICO
Anna Scharffenberg, Funding Officer, KfW

The green and social bond market experienced significant growth over the past years. 2017 marks another record year with USD 90 bn of new green bond issuance. The market currently has a total volume of outstanding bonds of USD 260bn. Beyond green bonds, the social bond segment gained momentum in 2017.

Social bonds, just like green bonds, are part of the so called use of proceeds bond market, where issuers precisely define the use of funds raised. In this case they are funds for projects with a positive social outcome. However, this market is much smaller with an outstanding amount of USD 12 bn. The panelists agree that this market offers a lot of opportunities, especially as it is about to grow further. In addition, all participants share the view that having an impact on the environment or society through issuing or investing in green or social bonds is one of the most important benefits of these markets.

However, investors as well as issuers are still struggling with unprecise definitions and methodologies of green and social bonds. Even with the green bond principles (GBP) and the social bond principles (SBP) in place, the panel voiced a lack of general definitions and guidelines, especially in the social bonds market. This is also ascribed as these markets are very specific and depending on different circumstances, as for example the term green has not the same meaning for China as for Europe.

In general however, all panelists see more opportunities than challenges, and they are excited about the pathway of the green and social bonds market. Social bonds only turned three this year, while green bonds reached the age of ten. For the future, the participants of the panel would like to see additional issuers that add diversity to the market as well as more precise and generally valid definitions.

„Institutional Infra Debt –

A flash in the pan?“

Moderated by Tim Hoffmeister, Head of Global Syndicate, UniCredit
Peter Coenen, CEO, Hochtief PPP Solutions
René Kassis, Head of Private Debt, LBPAM
William Pierson, Managing Director Energy, Marguerite
Benjamin Hemming, Senior Investment Manager Infrastructure Debt, MEAG

The panel discussion focused on the role of institutional investors in project and infrastructure finance, involving representatives from the borrower/issuer side and the investor side of the table and therefore provided perspectives from each end of the market.

The discussion started with the question to the sponsors Hochtief PPP Solutions & Marguerite about how they see the contributions of institutional investors within their overall funding toolbox. For Marguerite Fund, whose establishment was a response to the perceived need to spur infrastructure investment in Europe in the aftermath of the financial crisis, institutional investors are a welcome source of potential funding. However, for greenfield projects, institutional investors may not provide the flexibility that banks can, particularly in projects where the long term viability is not really clear until post completion. For Peter Coenen from Hochtief, institutional investors are a welcome additional source of long term liquidity and Hochtief will use them selectively where it makes sense and actively try to develop relationships with different institutions. However, Peter Coenen stated that still around 80% of his required financing comes from Banks and only around 20% from Institutional Investors. Nevertheless, both sponsors were clear that institutional investors still need to compete with banks on pricing, structure and flexibility.

René Kassis from La Banque Postale Asset Management and Benjamin Hemming from MEAG then commented on their firms’ rationale behind establishing infrastructure debt platforms and how their experience had been to date. Not surprisingly, both funds cited similar rational, including the need to find long dated assets to match long dated liabilities and the desire to invest in assets which offer an illiquidity premium while achieving an attractive regulatory treatment for their underlying insurance and pension clients. To date both firms have been able to source and execute transactions and have begun to raise subsequent funds across Europe and also in America highlighting their firms ability to source transactions. Going forward, however, recognising they are in competition not just with banks but also multilaterals like the EIB, both investors stressed the importance of becoming more flexible in terms of the maturities, structures and formats that they could offer. This was particularly highlighted by René Kassis, who mentioned that La Banque Postale AM is open for transactions with maturities as short as 5 years – something not typical for institutional infrastructure investors.

In all, both sides of the panel recognised the value of institutional investors as an established and additional part of their overall funding alternatives but observed that, in particular against the backdrop of substantial liquidity and resurgence of bank liquidity, they need to adapt and work closely with bank arrangers to develop increased degrees of creativity and flexibility for all clients.

Risk Management

CTS Panel: „Digitalisation in

financial services and current

Risk & Liquidity Management topics“

Moderated by Guy Laffineur, Global Head of Markets, UniCredit
Ignacio Real de Asúa, Head of Capital Markets & Financial Risk Management, Iberdrola
Peter Radtke, Head of Corporate Finance &  Treasury, KUKA AG
Axel Zwanzig, Head of Treasury and Finance, Marquard & Bahls AG
Clemens Eder, Group Treasurer & Chief Risk Officer, OMV AG
Michael Spieler, Head of Treasury, Uniper

It makes the difference in efficiency – Treasury systems will interact with operational systems – No survival without automation – Safety is key – Automation of FX business ahead of liquidity management

This year´s CTS panel discussion focused on the development, the impact and the outlook of digitalised and automated processes in corporate treasury departments. The panelists shared their experience with regards to automated processes and the level of development and integration of digitalisation in their companies.

Among the panelists there was a clear distinction between the management of FX exposure and liquidity management: while management of FX flows is automated partially or even fully by most companies, liquidity management and planning still require large manual workarounds and capacity from the pure data collection to the analysis and final planning.

In general, the trend towards the centralisation of treasury business accelerates the automation and the need of digitalisation. Nowadays small teams manage financial exposures centrally across various geographies, efficiency and speed is key.

Automated processes in treasury departments are already widely implemented and wherever a manual process can be substituted by an automated process, this will be done. All panelists share this view. But the panelists have a different view on what digitalisation means for the treasury department. Can a human decision be taken by a machine? Can an algorithm fully substitute a trader? Or do traders already follow algorithms and just execute the transaction? The discussion showed that automation is a reality in the daily treasury business for all corporates while the approach to digitalisation in treasury departments is different across companies.

A large area of development with a massive potential impact is the integration of treasury into overall company operations. Digitalisation can deliver automated interaction and be faster and more efficient than human interaction, especially in large multinational companies operating across various time zones.

The smart use of big data and artificial intelligence will not only make a difference for consumers but should also replace in-house decisions on an operational level going forward. Fastest potential growing area are low-margin businesses with the need of ultimate cost efficiency to be profitable. Banks are seen in general as a future provider of optimised financial market solutions for corporates based on their big data analysis.

New technologies create new risks: all panelists agreed that the risk is shifted from the “human factor” to the new technology. Even if everything is fully automated and fully digitalised, there is a need for somebody who is finally responsible and who understands the process and can explain the financial risk a company is exposed to. This ultimately responsible decision maker will always be a human being.

Out of the ordinary:

Handling of FX Event Risk

Managing political event risk and Mergers &

Acquisitions outside your regular hedging scheme

Kathrin Goretzki, FX Strategy, UniCredit
Johannes Kannwischer, FX Structuring, UniCredit
Daniel Probst, Head of Strategic Sales Germany, UniCredit

In the Workshop on the handling of FX Event Risk we took the opportunity to show and discuss two types of Event Risk not covered by a regular hedging scheme of a corporate: First the Internal Event Risk as a risk with extraordinary uncertainty in the underlying transaction. The source of this risk could be a Merger or Acquisition or an larger extraordinary corporate event with underlying FX Risk.

And secondly the External Event Risk as a risk with extraordinary uncertainty in the market driven by an event and the market reaction. Within this group of Event Risks we differentiated between “Known” events which are fully priced in and which are not adding any addition volatility to the market, the “Known Unknown” events where the event is known but the outcome and market reaction is uncertain and finally the “Unknown Unknown” events which happen suddenly and which may cause unpredictable market reactions.

The management of all those events requires a deep analysis to quantify the net exposure, to re-assess the probabilities of certain scenarios and to finally define the hedging strategy.

We emphasised the importance of the right selection of (flexible) instruments and of timing for the closing of hedging transactions for the successful risk management of FX Event Risks.

Key Note Session

This year’s Key Note Session was once again kicked-off by Erik F. Nielsen, our Group Chief Economist and Global Head of CIB Research, with his speech titled “Life in the aftermath of the Great Recession: Markets navigating between good economics, tricky policies and scary politics”. Erik outlined how markets presently struggle within the triangle of strong economic fundamentals, unprecedented central bank policies and troublesome politics. Most importantly, global trade is picking up, powering GDP throughout the world, helping to put Europe and its economy in a more robust shape than the year before. Erik closed by urging the audience to monitor closely the further evolution of Chinese debt, the financing situation for Turkey and the various geopolitical risks.

The  European  banking landscape was elaborated in a lively exchange between Erik F. Nielsen and José María Roldán, Chairman and CEO of the Spanish Banking Association and Vice-President to the European Banking Federation (EBF).

Mr. Roldán identified four main risks and challenges for the financial sector: low interest rates, differing degrees of regulation between banks and non-banks (including FinTecs) and between European and non-European banks, FinTecs, in particular those whose business models are in direct competition with banks, and last not least the reputation of banks.

Both speakers acknowledged that restoring banks’ reputation might be the biggest challenge of them all and expressed their confidence that European banking union will be critical to support the creation of more pan European banks to follow in UniCredit’s footsteps.

Erik F. Nielsen’s presentation and a video of his speech can be downloaded here!

The video of the discussion can be downloaded here:

Disclaimer

Disclaimer

This publication is presented to you by:

Corporate & Investment Banking
UniCredit Bank AG
Arabellastr. 12 D-81925 Munich

The information in this publication is based on carefully selected sources believed to be reliable. However we do not make any representation as to its accuracy or completeness. Any opinions herein reflect our judgement at the date hereof and are subject to change without notice. Any investments presented in this report may be unsuitable for the investor depending on his or her specific investment objectives and financial position. Any reports provided herein are provided for general information purposes only and cannot substitute the obtaining of independent financial advice. Private investors should obtain the advice of their banker/broker about any investments concerned prior to making them. Nothing in this publication is intended to create contractual obligations. Corporate & Investment Banking of UniCredit consists of UniCredit Bank AG, Munich, UniCredit Bank Austria AG, Vienna, UniCredit S.p.A., Rome and other members of the UniCredit. UniCredit Group and its subsidiaries are subject to regulation by the European Central Bank. In addition UniCredit Bank AG is regulated by the Federal Financial Supervisory Authority (BaFin), UniCredit Bank Austria AG is regulated by the Austrian Financial Market Authority (FMA) and UniCredit S.p.A. is regulated by both the Banca d’Italia and the Commissione Nazionale per le Società e la Borsa (CONSOB).

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The information provided herein or contained in any report provided herein is intended solely for institutional clients of Corporate & Investment Banking of UniCredit acting through UniCredit Bank AG, New York Branch and UniCredit Capital Markets LLC (together “UniCredit”) in the United States, and may not be used or relied upon by any other person for any purpose. It does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other US federal or state securities laws, rules or regulations. Investments in securities discussed herein may be unsuitable for investors, depending on their specific investment objectives, risk tolerance and financial position. In jurisdictions where UniCredit is not registered or licensed to trade in securities, commodities or other financial products, any transaction may be effected only in accordance with applicable laws and legislation, which may vary from jurisdiction to jurisdiction and may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements. All information contained herein is based on carefully selected sources believed to be reliable, but UniCredit makes no representations as to its accuracy or completeness. Any opinions contained herein reflect UniCredit’s judgement as of the original date of publication, without regard to the date on which you may receive such information, and are subject to change without notice. UniCredit may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in any report provided herein. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of further performance, and no representation or warranty, express or implied, is made regarding future performance. We and/or any other entity of Corporate & Investment Banking of UniCredit may from time to time, with respect to any securities discussed herein: (i) take a long or short position and buy or sell such securities; (ii) act as investment and/or commercial bankers for issuers of such securities; (iii) be represented on the board of such issuers; (iv) engage in “market-making” of such securities; and (v) act as a paid consultant or adviser to any issuer. The information contained in any report provided herein may include forward-looking statements within the meaning of US federal securities laws that are subject to risks and uncertainties. Factors that could cause a company’s actual results and financial condition to differ from its expectations include, without limitation: Political uncertainty, changes in economic conditions that adversely affect the level of demand for the company’s products or services, changes in foreign exchange markets, changes in international and domestic financial markets, competitive environments and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement.

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Corporate & Investment Banking
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as of 28 September, 2017