Credit portfolio manager of the year: UniCredit

Risk Awards 2025: A focus on economic value-added prompted a rapid expansion of the bank’s synthetic risk transfer activity

Left to right: Antonino Alfano, Pier Mario Satta, Gabriele Conca, Stefano Chiarlone, Luciano Chiarelli, Francesco Casoli, Andrea Cremonino, Loussine Agopian

Photo: UniCredit

UniCredit has been a longstanding participant in synthetic risk transfer (SRT) markets, but the scale of activity has changed dramatically in recent years. At the root of that growth was the arrival of Andrea Orcel as chief executive in 2021, leading to a change of strategy.

“When the new chief executive arrived in 2021, we decided to put capital generation at the forefront of our plan,” says Stefano Chiarlone, head of balance sheet management at UniCredit. “When we started, we had a situation – especially in the Italian book but not exclusively – where we had a large amount of capital deployed to clients that were not giving us enough profitability.”

To address that, the new strategy focused on simplified economic value added (sEVA), which became particularly important after eurozone interest rates began to rise in 2022. The rate hikes left as much as 50% of the risk-weighted assets (RWAs) on UniCredit’s mid-sized corporate loan portfolio with negative sEVA, because fixed-rate loans originated before 2022 were generating returns too low to justify their consumption of RWAs and capital.

“We were also looking at the net revenues on risk-weighted assets, which is a figure that we always include and comment on when we present our quarterly results,” says Chiarlone.

We decided to be very open with investors, we wanted to show them the quality of the portfolio that we were securitising

Stefano Chiarlone, UniCredit

Inevitably, the credit portfolio management function needed to step up to solve this problem, both through greater origination discipline, and through steps to reduce RWA consumption on the existing portfolio. The team first attempted to reprice, looking for cross-selling opportunities or additional collateral from the client to bring loans into positive sEVA territory. If these levers were not enough, for smaller clients the bank would close the relationship or reduce the capital allocation.

However, for mid-sized and large corporate sEVA-negative clients that could not be cleaned up with those levers, and whose relationships were too important for the bank to jeopardise, SRT was a natural response.

“We have approached all asset classes – mid-corporates where we had this big sEVA problem, large corporates, residential mortgages, and real estate leasing assets – and have tried every year since to issue synthetic securitisation for most of these asset classes to reduce RWAs,” says Chiarlone.

The results are impressive. By the second quarter of 2024, RWAs had been reduced to €277 billion, down from about €295 billion a year earlier. More importantly, the volume of the mid-sized corporate credit RWAs carrying negative sEVA had fallen by around €20 billion.

The CPM team has expanded its focus to include deals that are sEVA-positive but still have low rates of return. And UniCredit’s role in the market has soared. According to private credit investor Chorus Capital, the bank wasn’t even in the top 10 banks for SRT issuance in 2021. In the first three quarters of 2024, its SRT issuance was second by volume globally.

“When we started, we were behind the pack, given our many years of absence from the market,” says Chiarlone. “Under the previous management, reducing RWAs had less centrality, as we were more focused on cleaning up house in terms of non-performing exposures – so synthetic risk transfer was not really top of our priority list.”

Last to the party, first in class

To make the most of its late arrival, UniCredit consciously sought to set high standards for its interaction with the SRT market. Investors in the deals praised the efficiency with which the bank supplied deal data, and the ease of access to the UniCredit bankers who are familiar with the details of the underlying exposures.

“When you are the last to arrive, in order to get attention, you need to bring something to the table,” says Chiarlone. “We decided to be very open with investors, we wanted to show them the quality of the portfolio that we were securitising.”

In July this year, the bank brought together under the auspices of CPM both the capital management and SRT functions, combining ex ante assessment of loan profitability with the distribution function. And Chiarlone’s own role is evidence of how CPM has been carefully fitted into the overall strategy – in addition to being head of balance sheet management for the group, he is also chief financial officer for Italy. This unified structure has helped augment capital optimisation.

When we allocate capital to our bankers, we do it considering the capital data that is saved through securitisation, [so] it is a multifaceted approach

Stefano Chiarlone

“We work in a full value chain, end-to-end, from originators through to structuring and distribution,” he says.

The operational co-ordination has allowed UniCredit to begin issuing partially paid SRT deals that upsize as new loans are originated, allowing the bank to pass RWA savings onto borrowers at the point of origination. This helps boost lending velocity as well.

“When we originate, we try to establish from the beginning whether we will securitise, because the securitisation allows the originator to recover the capital they have deployed in those deals and gives them more flexibility in their budget for new lending,” says Chiarlone. “When we allocate capital to our bankers, we do it considering the capital data that is saved through securitisation, [so] it is a multifaceted approach.”

Variety and innovation

The search for capital optimisation has also led UniCredit to expand its risk transfer focus into new asset classes. At the end of 2023, the CPM team concluded that an entity dedicated to leasing finance for renewable energy and real estate was still consuming a significant amount of non-profitable RWAs, so it adapted SRT programmes for this area.

“We did our first transaction in leasing at the end of 2023 on a renewable finance portfolio, which was in fact the first renewable finance synthetic risk transfer,” says Chiarlone.

The renewable finance leasing deal done at the end of 2023 was placed with a hedge fund investor. The transaction was only €500 million nominal, but it opened the door for more ambitious deals.

“At the start of 2024, we did a very big synthetic securitisation for a real estate leasing asset that, instead of being done with a hedge fund as the market usually does, was executed through the insurance market,” says Chiarlone.

We are working to mitigate Basel III as much as possible, so we will start approaching new asset classes with SRT

Stefano Chiarlone

Transacting with four of the largest European insurers, UniCredit was able to securitise a nominal real estate leasing portfolio of €2.5 billion. The bank retained the junior tranche, while placing the mezzanine with the insurance market at a single-digit coupon. This deal and others like it were doubly sEVA-positive, because they reduced the RWAs of the existing assets and enabled organic capital generation to be deployed for new origination.

“Not only did we offload roughly €1 billion RWAs through this transaction, but we also generated additional value for the bank,” says Chiarlone.

Bringing insurers into leasing real estate deals was not without difficulty. By taking the time and effort to translate bank credit risk models into a framework that can be used for decision-making at the insurers, UniCredit paved the way for a new pool of investors on future deals.

Insurers have bought into residential mortgage deals issued by UniCredit over the past three years, so the bank concluded there was a natural appetite for transactions with duration using other real estate underlyings. However, mortgages are a more straightforward exposure for investors. With real estate leasing, there is the dual complexity of a long-duration asset where the borrower is not the owner of the property itself, so the insurers had to get comfortable with that specificity.

“You issue a loan, but it’s a leasing transaction with the residual value at the end,” says Chiarlone.

To date, most of the CPM team’s deals have focused on the Italian and German loan markets, although there have also been transactions involving assets from Bulgaria. The European Union plans to implement new Basel Committee on Banking Supervision rules in 2025 that include a standardised floor that is likely to push up RWAs. Consequently, UniCredit is looking to expand SRT to cover its entire geographic footprint.

“We are working to mitigate Basel III as much as possible, so we will start approaching new asset classes with SRT, including leveraged finance, project finance and commercial real estate,” says Chiarlone.