Credit Agricole Scouts for Takeover Targets in Italy

(Bloomberg) -- Credit Agricole SA, France’s second-biggest lender, is scouting for potential acquisitions in Italy as banking deals accelerate in Europe, according to people familiar with the deliberations.

The French firm has discussed purchases of small and mid-sized banks in Italy, said the people, who asked not to be identified because deliberations are private. Potential targets include Banco BPM SpA as well as Credito Valtellinese SpA, commonly known as Creval, said the people.

Credit Agricole has been eyeing opportunities with advisers in Italy since earlier this year, but those considerations had been put on hold as the Covid pandemic ravaged economies and led to a surge in loan-losses in Europe, the people said.

While Credit Agricole already has a relationship with Creval, Banco BPM is “certainly a better and more reliable target,” Fabrizio Bernardi, an analyst at Fidentiis Equities, wrote in a note to clients Thursday. A deal with Banco BPM would potentially give Credit Agricole enough scale in Italy to compete with Intesa Sanpaolo SpA and UniCredit SpA in investment banking and serving large corporates, according to Bernardi.

While cross-border banking mergers are difficult, Credit Agricole’s existing presence in Italy would help any deal, he said.

Domestic Consolidation

Deliberations are still preliminary, there are no formal talks and the French lender may opt to focus on organic growth or a domestic deal, the people said. A representative for Credit Agricole declined to comment on potential acquisitions, saying only that the bank’s previously expressed medium-term plan “remains unchanged.” Spokespeople for Banco BPM and Creval declined to comment.

Shares of the two banks jumped on the news, with Banco BPM up 5.8% at the close Thursday in Milan and Creval’s stock gaining 12%.

Italian banking consolidation began earlier this year with Intesa’s planned takeover of Unione di Banche Italiane SpA. The merger wave moved to Spain, where CaixaBank SA agreed to buy Bankia SA earlier this month to create the nation’s biggest lender.

Italy has also asked UniCredit executives if they would be interested in buying the government’s majority stake in Banca Monte dei Paschi di Siena SpA, people with knowledge of the matter said earlier this week.

Still, while domestic mergers are heating up, the lack of a common deposit plan and banking union make large-cap deals between banks in different countries more challenging. If Credit Agricole were to buy a smaller rival in another country, it would be the first recent example of a cross-border deal, although the lender is already among the largest in Italy.

Retail Network

Credit Agricole has an existing consumer finance joint venture with Milan-based Banco BPM, which has a market value of 2 billion euros ($2.34 billion). And it owns about 5% in Creval as part of a life-insurance partnership with the Italians from 2018. The northern Italy-based lender is worth about 561 million euros.

The French firm, which is valued at more than 21 billion euros, has an extensive presence in Italy including retail, corporate and investment banking operations. The lender has expanded in the country with acquisitions in asset management and retail banking starting in 2007. It is the seventh-biggest in the country by total assets and has more than 3.5 million clients.

Credit Agricole, which is less dependent on trading than crosstown rivals BNP Paribas SA and Societe Generale SA, achieved better-than-expected net income in the second quarter. It has retail operations in countries including Poland and Egypt, owns a corporate and investment bank as well as Europe’s biggest asset manager Amundi SA. The lender, which also owns a network of mutual banks in France, has not shied away from deals in the recent past.

If banks trade below book value, a buyer of such an institution could write up the difference between the target’s book value and its market worth to its capital buffers. That mechanism would help to absorb any additional risk-weighted asset charges.

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