Intesa’s UBI Takeover May Stir Dormant Italian Banking M&A

(Bloomberg) -- Intesa Sanpaolo SpA’s Carlo Messina is set to pull off Europe’s biggest banking merger in a decade, reshaping the Italian market and possibly giving life to long-stalled consolidation across the country’s financial industry.

Intesa overcame regulatory hurdles and resistance from the bank’s management and shareholders to take over smaller rival Unione di Banche Italiane SpA in a deal that will make the Milan-based bank Italy’s biggest lender by assets. Messina, the chief executive officer, said the move is part of a bigger ambition to play a part in Europe-wide dealmaking. More than 90% of UBI investors tendered their shares in the offer, which expired Thursday.

The bank’s move to reinforce its leading role in the country has sparked a wave of behind-the-scenes talks about other possible Italian combinations. With the Italian Treasury committed to exiting Banca Monte dei Paschi di Siena SpA by next year, mid-sized lenders struggling to scale up, and UniCredit SpA losing ground in its home market, banking M&A in Italy may get busy soon.

Intesa Set to Take Over UBI After Two Thirds of Shares Tendered

A number of Italian bank executives, including those at UniCredit, Banco BPM SpA and Monte Paschi were tapped by UBI’s advisers in recent months to explore possible alternatives to Intesa’s hostile approach, people with knowledge of the matter said. UBI Chief Executive Officer Victor Massiah was willing to combine with Banco BPM, but contacts didn’t progress, they said.

“I expect that the Intesa effect will be to put pressure on bank executives, leading to an intensification of merger talks, something that is already happening,” Mediobanca SpA Chief Executive Officer Alberto Nagel said on a conference call on Thursday. “We will see an increasing consolidation in Italian banking system, and Mediobanca will play a role as adviser and by offering capital market activities.”

A less stringent approach by the European Central Bank may also favor more deals. The ECB has said recently that it won’t block the kind of bank mergers that could help Europe’s beleaguered industry and that lenders don’t automatically face higher capital requirements in a merger deal. It also said that certain accounting gains can be used to to boost capital.

UniCredit CEO Jean Pierre Mustier discussed a joint bid with Banco BPM for UBI, Il Messaggero reported. The initiative was aborted after the European Central Bank indicated that it would probably not approve it, the newspaper said. While Mustier last week reiterated that the bank is not interested in M&A, some analysts highlight that the pressure is mounting on UniCredit after Intesa’s action.

“UniCredit should catch M&A opportunities that can arise after Intesa’s deal,” said Stefano Girola, a portfolio manager at Alicanto Capital SGR in Milan. With Intesa CEO Carlo Messina “breathing down on his neck, Mustier may reconsider his positions on M&A and start review options In Italy, the most compelling target would be Banco BPM.”

Intesa is seeking to be in a stronger position for cross-border M&A when European consolidation in the banking sector will start, the bank said when it proposed the UBI takeover in February. At current prices, UBI has a market value of 4.2 billion euros ($4.9 billion).

European bankers are trying to dig themselves out of a hole after years of strategic reboots failed in the face of negative interest rates, sluggish economic growth and now the consequences of the Covid-19 pandemic. The ECB has suggested that mergers are one answer because they could remove some of the intense competition between banks and them address persistent high costs.

Monte Paschi has hired Mediobanca SpA to review alternatives, and Finance Minister Roberto Gualtieri says he’s confident that the Treasury will exit the lender by the 2021 deadline.

Possible Combinations

Banco BPM and BPER Banca SpA have often been described as potential candidates for a tie-up with Monte Paschi, with investment banks pitching proposals on possible combinations among them.

Any possible deal may take time, as Monte Paschi has to complete the transfer of bad loans and its still stuck with about 5 billion euros of legal risks that raise concerns among peers for a possible combination, said people with knowledge of the matter.

BPER is ready to play an “active role” in Italian banking consolidation, CEO Alessandro Vandelli said in an interview Thursday with Il Sole 24 Ore. Intesa’s pursuit of UBI “triggered the start of a process of new aggregations” and every bank is making “the necessary reflections,” he said.

Representatives for UniCredit, Banco BPM, Monte Paschi and BPER declined to comment on the topic beyond the official remarks of their executives.

“A successful completion of Intesa’s deal on UBI would put a lot of pressure on competitors, and deals that were shelved last year may suddenly come back to the table,” said Francesco Castelli, head of fixed income at Banor Capital.

Italy’s mid-size banks were struggling to cope with the aftermath of the global financial crisis and a decade of low interest rates when months of lockdowns due to the coronavirus added further pressure on their balance sheets.

“I believe the drivers for more M&A will prevail,” said Marco Troiano an analyst at Scope Ratings GmbH. “Italy is overbanked, and the banking system has to move on from the sub-par profitability of the last decade.”

Potential tie-ups have been high on the agenda of the bankers for years, but no one seemed ready to take the first step. And even after Intesa’s takeover bid, hurdles remain for others who want to follow. Italy’s poor economic prospects, the impact of the coronavirus, and governance issues may delay deals that analysts see as the solution for the sector’s weak performance.

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