Italy banking: Consolidation is coming, says UBI Banca CEO

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By:
Dominic O’Neill
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As UBI Banca prepares a new capital raising linked to its purchase of three rescued banks, CEO Victor Massiah says his bank and others can do more to build economies of scale through mergers.

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Victor Massiah, CEO of UBI Banca

Consolidation in Italy’s fragmented banking system is happening, insists Victor Massiah, CEO of UBI Banca, Italy’s fourth biggest bank by market capitalization.

Massiah is preparing a €400 million capital raising for its purchase of three banks rescued in late 2015, but says he and other banks could embark on new mergers, as the sector recovers from a bad-debt induced brush with death last year.

UBI announced a deal to buy Nuova Banca delle Marche, Nuova Banca dell’Etruria e del Lazio and Nuova Cassa di Risparmio di Chieti from a sector-backed resolution fund in January. To make sure its core tier-1 ratio stays above 11% after the merger, it is preparing a €400 million capital raising pre-underwritten by Credit Suisse and Morgan Stanley.

Massiah hopes this will be completed in the first half of the year, after a shareholder meeting in early April, and after the second round of the French presidential election in early May.

“It’s inevitable that there will be concentration in the market,” he tells Euromoney while meeting investors in London. “With the still-difficult environment, economies of scale will be very important. Compliance and technology costs continue to be key. We see ourselves as an aggregator.”

Massiah says the integration of the three rescued banks will be completed within 18 months, and the bank could look at other deals within that period.

As its capital is relatively robust, UBI has been the subject of frequent rumours in the past two years about potential mergers with other Italian banks, including Genoa-based Banca Carige and even Monte dei Paschi di Siena (MPS), Italy’s third biggest bank by assets.

Hard to buy

However, Massiah says it will be hard for UBI to buy Monte dei Paschi if MPS turns itself around, as its market capitalization would then be too big, while Carige remains tightly held by its family owners. Two other Italian mid-tier lenders, Banca Popolare di Milano (BPM) and Banco Popolare, agreed a merger last year.

“It’s true,” he admits to Euromoney’s suggestion that the pace of mergers in Italy has not lived up to expectations in early 2015, when the previous Italian government ended the popolari banks’ mutual-style voting caps. “But in my opinion it’s not over; it’s still something that will happen.”

UBI’s shares have risen by around 60% since late 2016. Massiah partly attributes the surge to the conditions of the purchase of the three banks, as the market expected UBI would be asked to merge with smaller and more troubled Italian banks, due to its relatively low gross non-performing loan ratio (14%).

While Intesa Sanpaolo would be hard-pushed to increase an already large market share in Italy, other big Italian banks such as MPS and UniCredit had problems of their own, while BPM was merging with Banco.

“We were the only possible consolidator with the right size,” says Massiah.

Modena-based Banca Popolare dell’Emilia Romagna, however, is acquiring the fourth bank rescued in late 2015, Nuova Carife.

UBI is paying the resolution fund €1 for the three other banks, on the condition they would first offload €2.2 billion of gross non-performing exposures, while the fund would have injected €450 million. UBI owns 5% of the fund with the rest of the sector holding the balance.