Italian banks rejig top brass as stocks stagnate

By:
Dominic O’Neill
Published on:

CFO leaves MPS for UniCredit after new chairman arrives; lack of buyers stymies M&A.

There have been more senior banking reshuffles in Italy, as the sector continues to struggle to attract investors. Bernardo Mingrone, formerly chief financial officer and deputy general manager at Monte dei Paschi di Siena (MPS), has joined UniCredit as chief financial officer.

The CFO job at Italy’s biggest bank became vacant with the departure of Roberto Nicastro, a senior figure at UniCredit since the early 2000s, who helped the bank build its network in central and eastern Europe. UniCredit announced Nicastro’s departure with second half results; it was effective October 1.

Unicredit's Chief executive Federico Ghizzoni
Federico Ghizzoni, UniCredit, is overseeing the changes at the top

Federico Ghizzoni, UniCredit’s chief executive since 2010, is doing away with Nicastro’s role of group general manager, although former CFO Marina Natale has been promoted to deputy general manager, overseeing asset management. Ghizzoni replaced chief risk officer Alessandro Decio with Massimiliano Fossati, the former CRO for Italian commercial banking, at the same time.

MPS, Italy’s third biggest bank, has promoted Arturo Betunio – former head of administration, budget and financial reporting officer – to replace Mingrone as CFO. Mingrone’s departure comes shortly after the Tuscan lender appointed a new chairman in mid-September, Massimo Tononi. That follows the resignation of Alessandro Profumo, the former UniCredit CEO, who had taken on the task of cleaning up and restructuring MPS.

Positive note

Mingrone, who worked under Profumo and Ghizzoni at UniCredit between 2008 and 2012, was able to leave on a positive note, shortly after MPS announced a legal settlement with Nomura over the notorious Alexandria swap transaction arranged under former management. MPS said a lower cost of unwinding that transaction thanks to the settlement would give the bank a 70bp boost to its fully-loaded CET1 capital ratio, sending its share price up.

Analysts have been impressed with MPS’s efforts to reduce costs and sell non-core assets during Mingrone’s tenure. Fabrizio Bernardi, banks analyst at Fidentiis Equities in Milan, says Mingrone’s return to UniCredit is another step up for a rising star in Italian banking – Mingrone is only 41 years old. “[Mingrone] did a good job at MPS,” says Bernardi. “It’s a bigger, better opportunity at UniCredit.”

Nevertheless, the challenges facing those at the top of the Italian banking sector remain daunting. Despite much talk of a eurozone recovery, UniCredit is trading well below book value. MPS is trading at around half book value. Non-performing loans are a heavy drag, despite some private equity sales. UniCredit’s NPL ratio is proportionally much lower than MPS’s 39.5% but it is still high at around 17.5%, according to Deutsche Bank.

It is now a year since MPS appointed Citi and UBS, in part to “explore strategic alternatives”, as the regulators are pushing it to merge, after it failed the ECB’s 2014 stress tests. While the new chairman is seen as well-suited to the job of finding a buyer, given his background at Goldman Sachs and Borsa Italiana, MPS shares fell after Tononi told a press conference that a sale of the bank was unlikely before the end of next year, as no suitors had yet come forward.

“The big Italian banks already have enough scale and distribution networks, and buying MPS would be a nightmare in terms of rationalization and integration,” says Luigi Tramontana, analyst at Banca Akros. He says a buyer would be more likely to come from outside Italy – though many of the most frequently-cited possible candidates (such as Barclays, Deutsche Bank, Santander or the big French banks) have more pressing strategic dilemmas of their own to think through. MPS’s €46 billion bad debt pile is perhaps the biggest put-off.

It’s important for UniCredit to accelerate internal capital generation as its current capital ratios are lower than the average of the main eurozone banksLuigi Tramontana, Banca Akros

UniCredit’s management reorganization was seen as an attempt to appease its restive shareholders, who are dissatisfied about the bank’s lack of action to boost profitability (return on equity was 5% in the first half of 2015) and CET1 capital (10.37% on a fully-loaded basis).

However, UniCredit’s shares have in recent weeks fallen back to their level before the management reshuffle was announced in early August.

Strategic review

Ghizzoni is due to announce a strategic review with third-quarter results, and the market is looking for decisive measures to boost profitability and capital, potentially including sales of weaker or peripheral parts of its international network. But again, some fear the potential list of buyers may be short or non-existent.

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“It’s important for UniCredit to accelerate internal capital generation as its current capital ratios are lower than the average of the main eurozone banks,” says Tramontana. More staff cuts and branch closures could help, he says. 

The Austrian, and to a lesser extent German, operations particularly need improvements to efficiency. UniCredit’s Austrian commercial banking operation has a cost-to-income ratio of 84%, according to Mediobanca.

Aside from improving cross-selling within the corporate and investment banking division, Tramontana says the switch to a single European supervisor could help UniCredit centralise its eurozone banks compliance functions in Milan – and perhaps allow its German bank HVB, which has a higher capital ratio than the parent, to pay extraordinary dividends to the group.