Banking analysts assessed the possibility of consolidation in Italy’s banking sector.
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MILAN, Italy — European policymakers have longed for bigger banks across the continent.
Analysts say Italy may realize their wishes through a round of large-scale mergers and acquisitions.
Many are looking at Italy’s banking sector in a new light, years after the region’s sovereign debt crisis and the government bailing out Banco Monte de Paschi (BMPS) from collapse.
“If you evaluate individual banks in Italy, it’s hard not to believe that something is going to happen in the next 12 months or so,” Antonio Reale, co-head of European banking at Bank of America, told CNBC.
Reale stressed that BMPS had been restored and needed to be re-privatised, adding that UniCredit was now sitting on a “relatively large excess of capital” and more broadly that the Italian government had a new industrial agenda.
UniCredit BankIn particular, its quarterly profit performance was outstanding and continued to surprise the market. Just earned it 8.6 billion euros last year (up 54% year-on-year), pleasing investors through share buybacks and dividends.
Meanwhile, the BMPS, which was rescued at a cost of €4 billion in 2017, must eventually return to private hands under an agreement with European regulators and the Italian government. Speaking in March, Italian Economy Minister Giancarlo Giorgetti said the European Commission had made “concrete commitments” to divest the government’s stake in BMPS.
“Overall, we think there is room for consolidation in markets such as Italy, Spain and Germany,” Morningstar senior vice president Nicola De Caro told CNBC via email. He added, “Domestic consolidation is more likely than cross-border mergers in Europe because of some structural barriers.
He added that despite recent consolidation in the Italian banking sector, including Intesa-Ubi, BPER-Carige and Banco-Bpm, “there is still a large number of banks and a fragmented mid-sized banking sector.”
De Carlo added: “UniCredit, BMPS and some mid-sized banks could play a role in potential future consolidation in the Italian banking sector.”
UniCredit CEO Andrea Orcel told CNBC in July that he didn’t see any deal potential in Italy at current prices, but said he would be interested in such a move if market conditions changed. Stay open to possibilities.
“Even though we’re doing well, we’re still trading at a discount to the industry (…) so if I were to make these acquisitions, I need to indicate to my shareholders that this is strategic, but in reality I’m going to be dilutive to you. I wouldn’t do it in return,” he said.
“But if things change, we are here,” he added.
Barclays analyst Paola Sabbione believes that if Italian banking mergers and acquisitions do occur, the bar will be high.
“Monte dei Paschi is looking for partners and UniCredit is looking for possible targets. So, in theory, there could be several combinations of these banks. However, none of them are in urgent need,” she told CNBC via email.
European officials are increasingly talking about the need for bigger banks. For example, French President Emmanuel Macron said in an interview with Bloomberg in May that the European banking industry needed greater consolidation. However, some skepticism remains about the so-called mega-deal. In Spain, for example, the government opposed BBVA’s acquisition of Sabadell in May.
“Europe needs bigger, stronger, more profitable banks. That’s undeniable,” Bank of America’s Reale said, adding that there were differences between Spain and Italy.
“Spain has come a long way. We saw a big wave of consolidation after the global financial crisis and that has continued in recent years, with a lot of excess capacity being taken out of the market in one way or another. Italy is much more fragmented as far as the banking market is concerned. ,” he added.
