UniCredit has long been the ugly sister of the top two Italian banks. Since the market for European banks started to falter in mid-2015, its shares have dramatically underperformed its main rival, Intesa Sanpaolo.
The divergence in investor sentiment reached such an extent that, shortly before UniCredit’s former CEO Federico Ghizzoni stepped down in the middle of last year, the smaller lender by assets was almost twice as big by market capitalization.
Now, the tables have turned. UniCredit is on the way to reclaiming its leadership. The decisive point may have come in the past few days and weeks, as UniCredit completed a €13 billion rights issue just as Intesa Sanpaolo backed out of a massive acquisition that ended up looking in part like a vain attempt to hold onto the limelight by CEO Carlo Messina.
Markets have vindicated the strategy explained late last year by the banker who took over from Ghizzoni, Jean Pierre Mustier. This is a vindication, too, of Mustier’s workaholic and surgically resolute managerial style; an approach that the clients, shareholders and staff of UniCredit so badly need.
Mustier pointed a gun to the head of his investors. An €8.1 billion provision in the fourth quarter saw UniCredit’s capital ratio fall below its regulatory minimum, threatening an additional tier-1 coupon payment that was due just as the rights issue was scheduled to close. They inevitably succumbed. Now Mustier and his team can concentrate on the huge work that remains, such as completing asset and bad-debt disposals and negotiating new sales, further improving the cost base, and repairing the client franchise.
While this is happening, Messina’s flirtation with Generali has been a dangerous distraction. Italy’s biggest insurer would have come with a price tag of more than €20 billion, making it the biggest European bank acquisition since 2008. Typical of the Italian rumour mill, in January Intesa was forced to acknowledge the truth of reports that it was considering a takeover. A month later, Intesa said it would not go ahead.
The episode suggests Messina is open to some unwise proposals. It also makes Intesa look rather desperate in its quest to grow the asset and wealth-management income that has been at the base of its Italian advantage over UniCredit, at a time when lending to Italian business is so unattractive. It also recalls rather unfavourably Messina’s earlier and less publicized overtures towards Coutts, RBS’ private banking unit.
Generali would have brought some benefit to Intesa, bringing assets under management, experienced financial advisers and some synergies. Insurance businesses have helped European banks offset lower banking fees and interest income – see CaixaBank. However, there is a big difference between owning a relatively small and simple insurer closely linked to the banking network, like CaixaBank and indeed Intesa do – and owning a much bigger and more complex insurance business, like ING did.
If Generali agreed, the two sides could have formed a joint venture of their asset management businesses in the mould of Amundi, Crédit Agricole and Société Générale’s old tie-up (now buying UniCredit’s asset management arm). But it was always hard to see how Messina could mesh his pledge to protect Intesa’s dividend with an acquisition of Generali, especially one that would not benefit from the so-called Danish compromise for the capital treatment of banks’ insurance holdings, as Messina rightfully said it should not.
More worrying still was the impression – not properly corrected by Messina – of a nationalistic motivation.
The decline of Generali’s relative market capitalization has made it vulnerable; France’s Axa is a long-rumoured possible acquirer. Conspiracy theorists note Generali’s CEO Philippe Donnet is French and a long-standing former Axa insider, mirroring Mustier’s link to SocGen, an often-rumoured acquirer of UniCredit.
Donnet even sits on the board of another French firm, Vivendi, whose chairman Vincent Bolloré has overseen purchases of large stakes in Italian firms, Telecom Italia and Mediaset, in recent years. The Bolloré group (like UniCredit) is a core backer of Mediobanca, which is a renowned Italian corporate power broker and Generali’s biggest shareholder.
Stymieing a foreign takeover of Generali would therefore have won political support, yet this would not have been useful enough to the bank or its shareholders to outweigh the risks. Hard-headed business decisions are rarely patriotic, at least in Italy. In any case, Intesa could not afford to keep the insurer intact. It would probably have had to sell the most valuable international units (France and Germany) to the likes of Allianz and Axa. Under Intesa, the Italian rump would hardly be any better able to support the national economy, jobs, or its shaky banks.
Meanwhile, a French CEO has notched clear success at UniCredit, which really will help an economy imperilled by the banks’ capital shortages. UniCredit has the chance to remain an Italy-based champion, with a big domestic business and a European empire.
Markets are increasingly cognisant of this switch. Berenberg now recommends buying UniCredit shares: a rare thing for these bearish analysts anywhere in southern European banking, let alone when the lender has recently been so close to the abyss. Mustier has given the impression of a radical change, despite committing to Germany’s third-biggest private lender, HVB, which Berenberg and others previously urged UniCredit to consider selling.
The top of Italian banking suddenly looks very different.