The Dealmaker’s Drive to Create an Italian Bank Champion
The Dealmaker’s Drive to Create an Italian Bank Champion
(Bloomberg) -- Carlo Messina may seem like an unlikely deal maker to kick off the inevitable wave of Italian bank mergers.
Having failed three years ago to combine with insurer Assicurazioni Generali SpA, the 57-year-old Intesa Sanpaolo SpA chief on Monday made the boldest move of his career with an unsolicited offer for Unione di Banche Italiane SpA that will create a national champion and keep a prized wealth manager out of the hands of competitors. The bid would also avert the risk of his bank being asked to buy Banca Monte dei Paschi di Siena SpA, the emblem of Italy’s banking woes.
“Messina’s move is brilliant because he’s acquiring a rival that was expected to lead the wave of mid-size mergers in the Italian banking industry,” said Carlo Alberto Carnevale Maffe, a professor at Bocconi University in Milan. Acquiring UBI also means Intesa won’t be saddled with Monte Paschi, which is still fragile and risky, according to Maffe.
Italy, home to one of Europe’s most fragmented banking markets, may be ripe for consolidation after lenders took strides in cleaning up a mountain of bad loans that piled up over the last decade. That could have posed a threat to Intesa’s position as the top choice for wealthy Italian families if smaller rivals combined forces with UBI.
“After some analysis, we figured out that UBI was the best candidate for Intesa Sanpaolo,” Messina said in a press conference in Milan on Tuesday. “With this deal we surpass Unicredit, SocGen, Credit Suisse and get close to Deustche Bank in term of revenue.”
The 4.9 billion-euro ($5.3 billion) all-share offer was made without the knowledge of UBI Banca’s board, according to people with knowledge of the matter. The directors will meet on Wednesday at 9 a.m. to discuss the bid. A UBI official declined to comment.
Banking consolidation is positive, but “there must be no repercussions from a jobs point of view,” Italian Economic Development Minister Stefano Patuanelli said in Brussels on Wednesday, according to Ansa.
If the deal goes through, Messina -- with his thick, floppy hair and a sense of confidence both in himself and Intesa -- will show once again that he’s a consummate political player on the Italian banking scene.
Veneto Banks
In 2017, his firm took over the good assets of Banca Popolare di Vicenza SpA and Veneto Banca SpA for 1 euro and also received billions of euros from the state to maintain its capital ratios and cover losses from bad loans and legal risks.
That takeover made Intesa the leading banking group in Italy’s northeast, one of the country’s wealthiest regions. It probably also served as a warning that Messina might once again be called on to snap up a bank Italy wants to see in new hands: Monte Paschi.
The state is obliged to sell its 68% stake in that lender after its weak controls and deficient lending standards led to repeated taxpayer bailouts. How that exit would take place is unclear, meaning it was a potential catalyst for deal making.
For More on Intesa’s Bid:
Italy Bank CoCos Return 11% in First Month on Intesa Bid: Chart
Intesa-UBI Must Not Have Impact on Jobs, Patuanelli Says: Ansa
With the UBI bid, Messina may be trying to steer clear of Monte Paschi while also placing Intesa at the heart of the rebound in the Italian banking sector. The former professor at the Luiss School of Management took the helm at Intesa in 2013 amid Italy’s longest recession in two decades and faced rising bad loans and increasing political instability in the euro region’s third-largest economy.
The CEO cut bad loans to one of the lowest levels in Italian banking and defended Intesa’s focus on its home market, pointing to holdings of hard-to-value assets at peers in France and Germany.
“This will give them an even more dominant position,” said Georgi Gunchev, an analyst at Bloomberg Intelligence in London. “It’s a bet on a continued recovery of Italian banking.”
The accounting advantages of the deal should help Intesa with the cleanup of problem loans, Gunchev said. “If the two banks combine, the creation of bad will can be used to boost coverage ratios for those loans,” he said.
UBI’s board doesn’t have many tools to defend the bank from a hostile takeover. Under the Italian “passivity rule,” a company’s board can’t take any action -- including a change of governance, capital increases or mergers -- that could impact the process. One of its only viable options would be an alternative bid to Intesa’s.
Past Mistakes
The UBI deal suggests Messina has learned from past mistakes.
In his last attempt at a big deal -- merging with Generali -- Messina sought support from institutional investors in both companies before making a bid, people familiar with the matter have said. Those talks led to leaks that forced the bank to announce that it was studying an offer and prompted Generali to move to counter the deal.
Messina had been looking since last year for an opportunity to expand the bank’ss business in its home-country, according to people familiar with the matter. He accelerated the UBI plan after the Christmas break when the deal was kicked off with only a few people in the loop, including Alberto Nagel, CEO of investment bank Mediobanca SpA, the people said.
Since 2017, Intesa has redoubled its efforts to manage funds for the wealthy. It’s a business that is less exposed to Europe’s negative interest rates that are eating into the traditional banking business of taking deposits and granting loans.
“Negative rates are a problem for the banking sector, that’s completely true, but for Intesa Sanpaolo in this phase they could be an opportunity,” Messina said in an interview last month with Bloomberg TV’s Francine Lacqua. “Families are moving into assets under management products and insurance products, and due to the fact that we are in such a very good position looking at this sector, we are benefiting from this situation.”
Intesa has the highest return on tangible equity in Italy, but it also has about 90% of its operations in the country and is exposed to a potential worsening of the economy as well as political turmoil, analysts at Citigroup Inc. said in a report last month. They also noted that the potential restructuring of Italy’s banking industry a key risk for Intesa.
With the UBI bid, that’s one risk that Messina has moved to deal with.
--With assistance from Jerrold Colten, Marco Bertacche and Chiara Remondini.
To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net;Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net;Sonia Sirletti in Milan at ssirletti@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Vidya Root, Dan Liefgreen
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