Interview with Jiří Hrouda: Between London and Prague

July 12, 2021

Financier Pavel Hubáček rebuilt his business empire and under the Creditas brand he covered the whole branched group. The architect of the changes is a young banker and today also Creditas' highest boss, Jiří Hrouda.

A few metres behind the reception and entrance turnstiles there is for many years a very popular café in certain circles. Just an ordinary passer-by will not get a coffee there, the door is opened with a chip card and you will not be allowed in without an invitation or an accompaniment. It is intended for local management, important clients, and visitors whose presence is announced in advance. Until last year, it was a nest of businessmen connected to the J&T group, which was based in the Karlín building opposite the Hilton Hotel. Well-known figures of Czech-Slovak business such as Dušan Palcr or the head of J&T Bank Štěpán Ašer used to be regular guests here, and occasionally Patrik Tkáč would show up too.

But today the building is dominated by blue-and-white flags, and in the corner of the café, instead of Tkáč and others, Olomouc billionaire Pavel Hubáček is consulting with his colleagues. He bought the building from J&T last year and this spring he moved all his companies from the Banka CREDITAS to the companies of the Unicapital group into it. It is the brand of the investment group Unicapital, which includes real estate projects such as Grandhotel Pupp, energy and agricultural companies and the Alzheimercentrum network of nursing houses, that is to slowly disappear and the blue logo of Creditas will dominate in the front of Hubáček's group. It is under the Dutch holding Creditas B.V. that the domestic financier has "hung" all his activities, while previously the bank and Unicapital stood separately.

The new corporate structure is signed by Jiří Hrouda, executive director of the newly formed group, a young banker who joined the running financial group in 2016. The local staff already knows well that neither gluten nor lactose can be added to his drinks and food, and the waitress automatically brings him a gluten-free bubble. "I've been practicing this for a few months now and I have to say I feel great," praises the young mana

ger while greeting his boss, Pavel Hubacek, who starts the meeting just a few tables away.
Five years ago, due to an offer from a Haná billionaire, Hrouda left the impressive view from the forty-two-storey Citibank skyscraper in London's Canary Wharf business centre and headed back to the Czech Republic to pursue his career. In London, Hrouda was part of a global team responsible for managing the liquidity of a giant banking group across global markets. The department was created under the pressure of regulators in response to the financial crisis of 2008 and 2009 that nearly buried US-based Citibank. The native of Tábor had already tried cooperation with the American regulator Fed and central bankers in Europe at the age of 26. And today, this experience comes in handy in his dealings with the CNB, which had to approve the financial group's new holding structure and its new investment funds, and in the spring it even ordered the bank to replace the members of its supervisory board.

You moved to London's Citibank after a few months working in the Prague branch, actually shortly after university. How did you manage it?
Citibank was testing a new instrument in the Czech Republic at the time, which responded to the Basel 3 banking regulation. It was to be applied throughout the EMEA region (Europe, Middle East and Africa - ed.). I worked on this as a junior with a colleague from England and the CFO for the whole region was responsible for it. Then when Citibank was dealing with a conflict with the regulator in Ireland, they remembered me and invited me to join the team. And the same boss then became the head of the newly formed team that dealt with the bank's global liquidity management. It was a very exciting role where I got to understand how the whole banking group worked. I worked with great people, came into contact with various institutions, and we dealt with a number of regulators on all sorts of specific requirements for liquidity and banking processes.

And after three years, in 2016, Pavel Hubáček called you and lured you into his services?
It was not quite like that. A certain friend introduced us and we started talking about some collaboration. At that time Pavel Hubacek was setting up a structure in Holland and I was supposed to help him with that. But gradually my role expanded.

Until you became the executive director of the entire Creditas financial group in February this year. At the age of 34. That's not bad. Pavel Hubacek has even hinted that you are the author of the new structure, is that correct?
We certainly worked on it together. But let's say I probably gave it some ideological basis. Our new structure is still settling in, we are hiring more colleagues, we will strengthen it.

So what is the main motivation for the creation of the new holding structure that surrounds both the bank and the Unicapital group?
It is the completion of one stage and the stepping off into the next. The aim of the new group structure is to achieve a robust corporate structure that reflects the development of the past years and allows for further growth. The group is meant to be more comprehensible, more marketingly graspable and also more efficiently managed. It is a logical step that will cover all our existing activities and strengthen the Creditas brand. The new funds are called Creditas, the real estate part is Creditas Real Estate, the Unicapital brand will gradually recede until perhaps one day it will just be Creditas.

The experiences from London will probably come in handy now when dealing with the CNB. In the spring, they ordered you to replace the supervisory board...
It certainly is a relevant experience. The supervision over Citibank by central banks has been enormous. After all, this was one of the largest banks in the world and a bank that was hit significantly by the financial crisis. It may not be well known today, but it was really struggling. And you are right that the themes in dealing with regulators are recurring.

Is it possible to compare the approach of the Fed, the ECB and the CNB?
This is hard to do. Each regulator behaves a little differently - depending on the position of the financial sector in a given country. If you are asking me whether the CNB is the toughest regulator I have seen, then certainly not. For example in Europe, I have seen a tougher approach from the UK regulator. But it is corresponding to how important and politically sensitive the banking sector is in Britain.

So you do not have the feeling that the CNB is more critical towards small banks?
I don't. It is just as interested in us as in any other bank. Negotiations with the CNB are intense right now, but I do not find it unfair in any way. It is our regulator and we are trying to cooperate as much as possible.

So you acknowledge that the bank had weaknesses in its organs? That the supervisory board did not fulfil its legally mandated role?
On-site supervision takes place on a regular basis and I have not experienced yet that CNB would come and just praise. That does not happen with any of the banks. We have prepared an action plan and we coordinate the procedure with the CNB. We have sent it a list of the members of the Supervisory Board under consideration and we are waiting for their approval. Overall, I see it as a bit of a tax for rapid growth, the bank has expanded a lot in the four years of its existence. In addition, we have tried to be different and to be as helpful as possible when lending to companies. For example, we wanted to help where the big banks could not because of the standardised processes. But we are working on finding the ideal line between being different and complying with regulation.

And isn't the bank's merger with the rest of the group also a path to a greater regulation by the CNB?
Yes, you are right that a unified financial group is subject to greater regulation. It is not just the bank. But it is the right way for us. With our capital markets plans, we would not have avoided it anyway.

Will this change the direction of the group's business in any way?
I do not expect a significant change in direction. A lot has happened since the Unicapital investment group was founded in 2013, at that time the group was based on agriculture, energy and real estate, today we are slowly leaving agriculture and focusing more on development. The rental housing should become a pillar, where we see a great potential, which is why a new division Creditas Real Estate was created, headed by Tomáš Hubáček.

But then there are the nursing homes of the company Alzheimercentrum. Does that mean you are not counting on them anymore? For example Penta could be interested in them. 
I think our Alzheimercenter network would appeal to more than just Penta... It is possible to say that this is not a sector where I see us in five or more years.

You are strengthening in investment, energy and development. So what are the group's medium-term goals?
The group makes mainly long-term investments in conservative sectors. The group's assets currently amount to CZK 83 billion, the profit for last year is over CZK 700 million despite the covid and we plan to grow further. In the upcoming years, the group's profits should be around CZK 1.5 billion per year. That is the target. We want to increase the bank's balance sheet from the current 65 billion to more than 100 billion, the volume of assets in the energy sector could double in five years. We would like to have over half a billion euros invested in rental housing in a similar time frame.

Your new investment funds are very visible. How many do you have and what are the next plans?
We currently have three funds on offer, but more will be added. Each of the funds is different in terms of industry focus and profile. Their purpose is to allow clients to participate in the business we do. For smaller investors, Creditas Nemovitostní I is intended. This fund invests in the real estate market, primarily in functional properties of commercial type that are capable of generating a stable rental income. The fund's targeted average returns are around five per cent. Another is Creditas Loan. This is for qualified investors and its shareholder can only become a qualified investor according to the law. It focuses on providing loans and borrowings to selected projects and on investing in securities. And for me, the most interesting is the energy fund, which is also intended for qualified investors.

That is where you have moved most of your energy distribution companies. Why?
Our energy fund is also unique as it does not operate by buying assets only after it has raised finance in the form of a share subscription. Right at its formation, we put in assets in the form of shares in distribution companies. As a result, the fund now has a net asset value of CZK 1.5 billion. These are 120 distribution systems with more than six thousand supply points, whose annual consumption amounts to more than one terawatt hour of electricity and gas. It is one of the largest energy distributors in the country. Thanks to the initial contribution of the group' s assets into the fund, we expect an interesting appreciation.

Fine, but why an open-ended investment fund?
Energy assets are expensive to acquire, but then deliver a relatively stable and predictable return. At this stage, it is a conservative structure that is suitable for entry of outside investors. We have seen an interest in Unicapital Energy bonds before. Within the group, we wanted to release capital for other types of investments, which in turn we want to finance from our own resources, as they carry a higher level of risk and it is necessary to work on them intensively before they achieve a similarly stable return. Typically, this might be new acquisitions in the energy or property development sectors. There is a potential of good performance, but as I say, there is still a lot of work to be done on these investments. Such projects will only be suitable for the entry of outside investors at a later stage. This is actually also a proof of our prudence.

The Group also has bonds worth approximately seven billion Czech crowns on the market. When you look at what is happening with Arca Capital, but also elsewhere, are you not afraid that this kind of financing will be outdated for some time?
We currently have bonds with maturities of three, five and seven years, which have interest rates ranging from 4.5 per cent to 6.9 per cent. We have always correctly repaid all the bonds that have graduated. It is important to note that our group has what is commonly called "grunt" or in finance "fundamentals". We do not speculate, we own real material things that make a real and predictable profit - houses, power systems, farmland. Personally, I am not too worried about the impact of these cases. People do not have that many options to invest in the market. So I do not expect a genocide of corporate bonds. But there will certainly be an increased pressure on the quality of issuers. And that's a good thing.

So what are the upcoming plans for the future?
From 2015 to 2020, the group grew by an average of 18 percent annually. So the plan is to maintain the pace at least. Our strategic priority is the growth of our bank and - as mentioned - investment in the energy sector and the development of our newly created rental housing division. Either under the Creditas Real Estate brand or under the developer V Invest, we are currently working on large rental apartment projects in Prague and Brno. We want to be different in this. The approach where a house is built, sold and no one takes care of it anymore is unfamiliar to us. We want to maintain it, rent it out, make it a long-term income-generating asset. I say that, while in other parts of the group we want to multiply the owner's money, here it is all about preserving it. And probably also in this case we will allow the investors to participate in the profits from it.

How do you like working with Pavel Hubáček, who, according to his own words, wants to gradually step back from an active role in the group? I noticed that you are on formal terms with him...
Yes, I am, it seems natural to me, although many people in the company are on first name basis with him. Anyway, the cooperation is excellent. Hopefully he feels it the same way. As the group grows, he is letting his managers make decisions on many things, giving them a lot of space. He is very numbers oriented, which suits me fine. Of course, we have to deliver good numbers. He is very rational, he pushes for efficiency. I cannot assess the topic of his departure. I think he will always want to talk about key strategic issues.

Isn't it a bit disturbing for your work that he is sometimes associated with political connections, for example with Jaroslav Faltýnek?
Certainly not for my job, and I definitely do not see it that way. It is one thing what is written, and another thing is reality. I have personally been very close to some of the deals. So I saw very well that, for example, the articles about ČD-Telematika were full of errors and lies. So I take other media speculation with reservations. For me, what is important is the actual work here, and I enjoy it very much. We have big things ahead of us.

This text was published in Týdeník HROT, author: Pavel P. Novotný