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Banking: More to come in Italian consolidation

The landscape of the Italian banking market has been completely redrawn over the past 12 months but consolidation remains work in progress.

This time last year ABN Amro and BNP Paribas were still in the process of executing their Italian takeovers, which dramatically upset the cosy lives of Italy's banks. Previously these had lived quiet prosperous lives under the shelter of protectionist-minded politicians.

Those deals followed on the heels of UniCredit's acquisition of HVB, which catapulted the Italian bank into the top the big league of European banking. Intesa and Sanpaolo IMI's merger, which is almost certain to go ahead, will put the merged entity in the same league as UniCredit in terms of size, although the two groups will have very different businesess.

With market capitalizations of about €60 billion, the two biggest Italian banking groups will be four times bigger than their next biggest competitors, Capitalia and Monte dei Paschi di Sienna, which in turn are each at least twice as big as the next tier of competitors. This vast scale differential could add significantly to the consolidation pressure already facing Italy's smaller banks.

Capitalia and Monte dei Paschi are arguably feeling the heat the most. Capitalia and Intesa had discussed a merger in the past but couldn't strike a deal. A merger between Capitalia and Monte dei Paschi would still leave the combined bank half the size of UniCredit or the combined Intesa/Sanpaolo IMI, which could make a deal with a foreign bank more compelling.


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