Pier Carlo Padoan’s appointment as chairman designate of UniCredit comes at a pivotal time for Italy’s biggest bank.
There’s a growing sense of impatience with chief executive Jean Pierre Mustier’s “no M&A” mantra. European regulators are looking much more favourably on bank mergers and acquisitions than before.
Shareholders welcomed Intesa Sanpaolo’s takeover of local mid-tier rival UBI Banca this year, lengthening Intesa’s valuation lead over UniCredit.
UniCredit’s share price has collapsed even more than that of other Italian banks since Covid-19, which is raising questions about Mustier’s prioritization of the firm’s status as a pan-European commercial bank.
Catalyst for change
Many see Padoan’s arrival as a catalyst for change, although the board was up for renewal anyway.
As a former finance minister, he is a prominent figure in Italy. He was the architect of drastic measures to stabilize the banking sector during the mid-2010s bad-debt crisis.
Contacts at state level will be particularly useful for UniCredit in the years ahead, given that today’s finance minister Roberto Gualtieri – like Padoan, from the centre left Democratic Party – desperately needs a buyer for Banca Monte dei Paschi di Siena (MPS).
Rome has agreed with Brussels to sell MPS by the end of next year. UniCredit is the most obvious and possibly the only candidate.
Padoan knows he must distance himself from the detail of any discussions around MPS. Politicians from the Five Star Movement, the senior party in the governing coalition, have already criticised his appointment, suggesting a conflict of interest, given his role in MPS’s 2017 nationalization.
Equally, though, the new chairman will need to prioritize his obligations to UniCredit’s shareholders. He can’t push a deal that would be bad for them.
UniCredit’s board, in any case, would surely have hesitated to appoint a candidate who would clearly be at loggerheads with their CEO. Mustier is still the banker who led UniCredit through its extraordinary market rehabilitation in 2016 and 2017. Who knows what would happen to its international standing without him.
Yet Padoan’s assumption of the chairman’s role will coincide with some sort of a fresh approach when the new board takes over in April.
The coronavirus has blown away the assumptions on which Mustier based his 2020-2023 plan in December. He and his team are consequently preparing to update the plan during an investor day in the first quarter, according to a bank source.
Goldman Sachs and JPMorgan won a mandate to advise on this earlier in October.
While Mustier is in danger of looking too stubborn on MPS now, his steadfastness could later be a good bargaining tool
There remain good reasons why this new plan would not be designed around a takeover of MPS, or indeed of Banco BPM: another troubled mid-tier lender of national systemic importance that wants a merger partner.
Banco BPM and MPS are still dealing with bad-debt troubles from the last crisis. Their asset quality is even less predictable after Covid.
Prime minister Giuseppe Conte has approved a plan for MPS to sell €8.1 billion of non-performing loans, but this requires more capital, which will be hard to raise from market sources.
MPS may face greater litigation costs, too, after the conviction for false accounting of three former representatives – subject to appeal – including ex-chairman Alessandro Profumo, formerly the long-standing CEO of UniCredit.
UniCredit’s strategic update will therefore concentrate on a project Mustier floated in December to set up a sub-holding for its international operations, which include Germany’s third biggest private bank HVB.
Reservations among UniCredit’s now-outgoing board are rumoured to have delayed this project’s implementation. It is still fraught with political sensitivity, not least as it is a way to mitigate exposure to the Italian sovereign, especially if it gets downgraded to junk.
The split would be even more politically problematic in Italy if it also facilitated a merger, as some suggest, between this carved-out international business – listed, perhaps, in Frankfurt – and, say, Commerzbank.
Although appealing to some believers in Mustier’s German and European ambitions, this could cut off Italy from UniCredit’s best parts: central and eastern Europe, and above all its German-based corporate bank.
Complicating factors
Is there a deal to be done?
Particularly in the unlikely event of a downgrade, Italy’s politicians and authorities must acknowledge that the country is no longer a natural host to a big European banking champion.
As such, they might agree to splitting off UniCredit’s international operations, in return for the bank agreeing to merge its Italian rump with MPS.
Among the numerous complicating factors to such a deal is getting the prior buy-in of whichever bank would combine with the international carve-out, as an MPS merger might otherwise not be worth the bother for Mustier.
The German government, which is Commerzbank’s biggest shareholder, may prefer a merger with Deutsche Bank, depending on how balanced it wants its banking sector to be.
But it is not inconceivable that Rome could offer enough protections to make MPS attractive enough for UniCredit’s shareholders on its own merits. MPS’s franchise is not all bad.
While Mustier is in danger of looking too stubborn on MPS now, his steadfastness could later be a good bargaining tool – if the government eventually gives the kind of support for a deal that Intesa had for its 2017 acquisition of the good bits of Banca Popolare di Vicenza and Veneto Banca.
State backing such as this could give Mustier an excuse to relent. He just needs to be sure that buying MPS wouldn’t affect his pledges on share buy backs and dividends.
Intesa’s CEO Carlo Messina managed this after its Venetian acquisitions. Messina, however, has been far better at ingratiating himself with the local establishment than Mustier.
This, of course, is precisely where Padoan comes in. UniCredit needs its interests heard in Rome, just as much as in Brussels and Frankfurt.
