On 24 September, Deutsche Bank announced it it had bought a stake of 4.5% in Banca Commerciale Italiana (BCI) for L700billion ($420 million).
The drama intensified on September 29 when Luigi Fausti, BCI’s chairman was forced out at a board meeting. The chairman fell out with some of the bank’s largest shareholders notably Italy’s traditional banking power broker Mediobanca over the choice of merger partner for BCI. Fausti favoured a merger with the new Istituto San Paolo-IMI banking group. But Mediobanca has long sought to merge BCI with Banca di Roma.
Italian banks need to grow if they want to be competitive under the euro.”I can see three stages of this process,” says Daniela Miccolis, analyst at brokerage firm Caboto Sim, “that will lead to not more than five big groups in the next few years. The first stage, which started at the end of 1996, will see a consolidation process among the bigger banks; the second, starting from 1999, will involve smaller banks too. Lastly, will come the time of a strong presence of international banks in Italy.”
Three big groups have already been formed. Last July, Banco Ambrosiano Veneto, a retail bank based in the rich north-east, announced it would spend L8.5 trillion to buy Cariplo, the largest Italian savings bank, centred in the wealthy Lombardy region. It was the first merger announced among the top 20 banks creating a new bank (Banca Intesa) to challenge the biggest in the country. Banca Intesa has recently bought Banca FriulAdria, smaller bank in the north-east, and plans to buy Cariparma, the Parma savings bank. Its aim is to expand its retail presence in wealthy areas with growing economies.
At the beginning of this year, a merger between IMI and Istituto San Paolo was announced. It has yet to be completed but is effectively a takeover by IMI, an investment bank with an efficient structure and focused management.
The third big deal was the merger between Credito Italiano and Unicredito formed by three northern saving banks: Cassa di Risparmio di Verona, Banca CRT di Torino and Cassamarca di Treviso to create Unicredito Italiano.
So far, five big banks BCI, Banca di Roma, Banca Nazionale del Lavoro, Banco di Napoli and Monte dei Paschi di Siena are out of this the process. But they are expected to move soon.
For BCI there appear to be two possibilities: merge with Banca di Roma or merge with the IMI-San Paolo group. That sets the stage for a battle between the old and new orders in Italian banking: a battle which involves the wealthiest and most influential figures in Italy, for example Fiat’s Gianni Agnelli, and foreign financial players.
A merger of BCI and Banca di Roma, supported by Mediobanca, “would be the easiest thing to do,” argues an analyst, “but it would not be the best. BCI would need a bank with less problems. Banca di Roma has serious problems of inefficiency.” In her opinion, this alliance would not bring any synergy in term of competitiveness, at least in the short term: “BCI is the only bank in Italy spread all over the country, but it would need a stronger presence in the retail market. An efficient regional bank in the rich northern regions would be better.”
A deal with IMI-San Paolo might make more sense. IMI has a strong presence in the corporate and wholesale securities markets as well as in asset management through Banca Fideuram which it controls. San Paolo has a good regional spread in the north (especially in Piedmont and Lombardy). It is also strong in asset management.
BCI would add a branch network throughout Italy and an international presence. The bank has almost 40% of its assets abroad. It owns the Brazilian bank, Sudameris, and the Hungary’s Central-European International Bank. The combination of IMI, San Paolo and BCI might be strong enough to compete on the international scene. According to a Morgan Stanley study this hypothetical group could achieve net profits of L5 billion and a return on equity of 18% within the next few years.
Until Deutsche Bank’s announcement the Banca di Roma-BCI deal still appeared the most likely. BCI is still linked to Mediobanca, a bank in which both BCI and Banca di Roma have 7.5% stakes. And the merger would rejuvenate Mediobanca’s position as the secretive driving force of Italian finance just when its leadership is coming under threat. “Mediobanca no longer has the monopoly of issues in the primary market,” points out Luca Comi, analyst at Monte Paschi Mercato. Its nearest rival is IMI.
The idea of this merger has also been supported by the Bank of Italy and by Generali, the insurance company which is the biggest shareholder in BCI with a stake of 5%. The Bank of Italy would be pleased if Banca di Roma managed to find a strong partner. Meanwhile Generali was planning a broad strategic alliance with Deutsche’s German rival, Commerzbank. (On the day after news broke of Deutsche Bank’s stake in BCI, Commerzbank announced that, earlier in September, it had increased its own stake in BCI from 2.99% to 4.33%.) The aim of this alliance was to compete in Germany, particularly with Allianz, the German insurance company which has a 10% stake in Credito Italiano.
Deutsche’s entry has changed the game, making the idea of a merger with IMI-San Paolo more plausible. It seems highly unlikely that Deutsche Bank and Commerzbank would both keep their stakes in BCI. Fausti always resisted the attempts of Mediobanca and its allies to force BCI into a merger with Banca di Roma. Paribas, now BCI’s fourth-biggest shareholder with just over 4%, had been seen as a supporter of a merger with IMI-San Paolo. Surprisingly, the French bank voted against Fausti at the meeting on September 25.
Of course foreigners will not decide the matter alone. Ifi-Ifil, the Agnelli family holding company, will become an important shareholder (with a stake of 3.7%) in IMI-San Paolo when the merger goes through. Deutsche Bank is close to the Agnelli family. The German bank, along with Mediobanca (2.72%) and Generali (2.5%), has a stake in Fiat.
Officially, Deutsche says its intention is to “wait and see which is the best option for shareholders”.
Banca Nazionale del Lavoro (BNL) will be privatized soon, probably in October, after the treasury rejected as too low a joint bid this summer from Ina, the National Institute of Insurance, and Credit Suisse for 35% of BNL. The core shareholders will be Banco Bilbao Vizcaya, with a stake of 10%; Banca Popolare Vicentina, a smaller bank centred in Veneto in the north east, with a stake of 7.75%; and Ina with 7.25%.
Then there is Monte dei Paschi di Siena. The board of directors of the Fondazione, the body controlled by the local government of Siena that owns the bank, agreed on September 23 to launch an IPO for 25% of the bank early next year. Most likely is a merger with Ina or an alliance with IMI-San Paolo.
There is Crédit Agricole’s stake in Banca Intesa (nearly 30%).
“Spanish banks are the most likely partners for an Italian bank,” believes Maria Grazia Mantini, an analyst at ING Bank in Milan. “Italian and Spanish accounting laws require the same frame of the balance sheet and also fiscal laws are very similar. French, German and English laws allow different accounting rules that can make an eventual merger more difficult.”
Could BBV’s presence as a core shareholder in BNL or Santander’s stake in IMI-San Paolo be the first signs of a Mediterranean connection in the banking sector?
Meanwhile the saga around BCI continues. After Fausti stepped down, Agnelli raised the idea of a three-way tie-up “BCI would be a good bride for IMI-San Paolo and further mergers could be done afterwards, maybe with Banca di Roma”. The game is still open. Luciano Mondellini
