Italy’s banking sector has been under scrutiny in recent years, particularly following a sovereign debt crisis and the government rescue of Banca Monte dei Paschi. However, there is a sense of renewed optimism amongst analysts who believe that Italy may be on the cusp of a significant wave of mergers and acquisitions. Antonio Reale, co-head of European banks at Bank of America, anticipates that major developments may occur within the next 12 months. He points to the successful re-privatization of BMPS and UniCredit’s substantial excess capital as potential catalysts for change.
UniCredit has been a standout performer in the Italian banking sector, surpassing market expectations with impressive quarterly profit figures. With 8.6 billion euros in earnings last year, a 54% increase from the previous year, UniCredit has been rewarding investors through share buybacks and dividends. On the other hand, BMPS, which was rescued in 2017 at a cost of 4 billion euros, is now poised for re-privatization in accordance with agreements with European regulators and the Italian government.
Nicola De Caro, senior vice president at Morningstar, believes that there is significant potential for consolidation within the Italian banking market. While recent mergers involving Intesa-Ubi, BPER-Carige, and Banco-Bpm have taken place, there remains fragmentation at the medium-sized level. De Caro suggests that UniCredit, BMPS, and other mid-tier banks are likely candidates to drive future consolidation efforts. However, he acknowledges that structural obstacles may limit the possibility of cross-border mergers within Europe.
UniCredit CEO’s Stance on Potential Deals
UniCredit CEO Andrea Orcel has expressed openness to potential acquisitions, provided that market conditions and shareholder interests align. Despite UniCredit’s strong performance, Orcel notes that the bank still trades at a discount relative to its peers. As such, any potential mergers or acquisitions would need to be strategically justified and beneficial for shareholders. Orcel emphasizes the importance of maintaining shareholder returns and indicates a willingness to explore opportunities for growth if favorable conditions arise.
Challenges and Hurdles Ahead
Paola Sabbione, an analyst at Barclays, cautions that any potential mergers in the Italian banking sector would face rigorous scrutiny. While there are banks like Monte dei Paschi and UniCredit actively seeking partners, there is no immediate urgency for consolidation. Additionally, European officials have echoed the need for larger and more resilient banks across the continent. However, recent opposition to major deals, such as BBVA’s bid for Sabadell in Spain, highlights the complexity and challenges associated with cross-border mergers and acquisitions in the European banking landscape.
The Italian banking sector is at a crucial juncture, with signs of impending mergers and acquisitions on the horizon. UniCredit and BMPS are seen as potential frontrunners in driving consolidation efforts, while regulatory scrutiny and market conditions will play a critical role in shaping the future landscape of Italian banking. Despite the optimism surrounding the possibility of larger banks in Europe, challenges and hurdles remain as banks navigate the complexities of potential M&A activity.