M&A noise grows around Monte dei Paschi di Siena
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M&A noise grows around Monte dei Paschi di Siena

The Siena-based bank has a better bill of health and is once again a target in Italy.

Photo: Reuters

The story of Italian lender Banca Monte dei Paschi di Siena (MPS) has been one of the longest-running and most painful in European banking.

But, like other Italian banks, MPS has ridden a wave of rising profitability on the back of higher net interest margins, thanks to higher central bank rates. The cost-of-risk and litigation problems that plagued the bank for over a decade appear largely over. In February, it said it would pay its first dividend for 13 years.

Meanwhile, BBVA’s launch of a bid for Spanish rival Banco Sabadell earlier this spring has sparked talk among financial institution M&A bankers of 'one last wave' of domestic bank acquisitions in Europe. MPS is an obvious candidate.

Italy nationalized MPS in 2017 under a former government after the bank failed to raise necessary new capital from private investors in the wake of the Italian non-performing loans crisis. Recently, the state has made encouraging progress in selling its share in MPS.

This started in November 2023 with a €920 million market sell-down of 25% of the bank, followed by a further 12.5% for €650 million in March this year.

Even as it has started to return to full private ownership, and as its financial performance has improved, leaders at other Italian banks have denied any interest in acquiring MPS

The looming end of a three-month lock-in period fixed to that March sale has led to talk of a further government sale, and not necessarily via another accelerated book-building process. The unveiling of a new medium-term plan by the bank around the announcement of its second-quarter results could provide the basis for an M&A deal, according to research from Citi.

Who would be the most likely buyers?

Although Intesa Sanpaolo is widely seen as having maxed out in Italian bank M&A, any of the other banks with large local market shares could be involved: UniCredit, mid-tier Italian lenders Banco BPM and BPER Banca, as well as Crédit Agricole, given its recent history of buying Italian retail banks.

According to one investment banker, a deal with MPS would trigger a chess game of mergers among Italian banks as lenders seek to challenge Intesa’s domestic retail-banking dominance.

Like at Sabadell, MPS’s turnaround in performance might make buying the bank a much less scary prospect. State sell-downs may be a further encouragement, as few private-sector bankers would want the government as a large shareholder.

On the other hand, there remain a lot of obstacles and uncertainties.

Denials of interest

Firstly, there is still some doubt about whether or not the government wants to relinquish its entire stake in MPS – the ruling parties hold diverging views on this topic. Any sale will remain highly politicized because of events around the nationalization and the bank's importance in the city of Siena.

Even as it has started to return to full private ownership over the past year, and as its financial performance has improved, leaders at other Italian banks have denied any interest in acquiring MPS.

Part of that is, perhaps, because speculation about a deal weighs on the share prices of banks that are seen as likely acquirers, while also boosting MPS’ shares.

Yet there are reasons why bankers’ denial of interest in MPS may be genuine.

Pier Carlo Padoan, UniCredit

A UniCredit bid for MPS would need exceptionally clear benefits for shareholders, not least as its chairman, Pier Carlo Padoan, was the finance minister who nationalized MPS before becoming the member of parliament for Siena. UniCredit’s chief executive, Andrea Orcel, backed out of talks with the government to buy MPS in 2021.

For Crédit Agricole, MPS would be a much bigger acquisition than anything it has done in Italy up to now. Given it is based in Paris, it would be harder for Crédit Agricole to get comfortable with buying such a big bank in Italy. Its bank purchases in southern Europe went exceptionally badly after the eurozone crisis, except in Italy.

For the two mid-tier Italian banks on the other hand, the issue is size.

Despite its restructuring, MPS’s balance sheet still stood at €123 billion at the end of 2023, compared with €202 billion at Banco BPM.

And though BPER has almost doubled in size since the 2020 acquisition of branches from UBI Banca as part of the latter’s acquisition by Intesa, and since its 2022 acquisition of Banca Carige, it is still not much bigger than MPS, with €142 billion of total assets.

Strategy rumours

Despite the discrepancy, many of the recent rumours around MPS have involved BPER – largely thanks to Unipol, Italy’s second-largest insurance company.

Unipol is BPER’s largest shareholder, with 19.9%, after it bought into a capital raising associated with the UBI branches purchase.

Carlo Cimbri, Unipol | Photo: Reuters

One senior source who knows the various personalities well calls Unipol’s chief executive, Carlo Cimbri, “the most lucid strategist in Italy”, referring to how he could mastermind a “third pole” in Italian banking, alongside Intesa and UniCredit.

This contrasts with BPM, where the main personality is Giuseppe Castagna, who was chief executive of Banca Popolare di Milano and held onto his position after it merged with Banco Popolare to create Banco BPM in 2016.

With the integration of Carige and the UBI branches now over, BPER appointed a new CEO this spring – former UniCredit number two Gianni Franco Papa, previously a BPER board member.

Like at BPER, meanwhile, Unipol has cemented an insurance distribution partnership with Banco Popolare di Sondrio, with total assets of €57 billion, by building up a 19.7% stake in that bank – sparking speculation about whether the two stakes would facilitate a BPER-Sondrio merger.

Although a Sondrio merger would add to BPER’s chance of becoming a new number three in Italian banking, buying MPS would still be a big mouthful for it to swallow. Selling off part of MPS could mitigate any size issues, but it could also add to the deal’s political sensitivity.

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