UniCredit SpA’s proposal to buy the performing assets of its ailing Italian counterpart Banca Monte dei Paschi di Siena SpA while shedding its bad debt burden makes good business sense, but could be undermined by the decline in bad debt. unions and regional political parties, according to industry experts.
UniCredit, Italy’s second-largest bank in terms of assets, has entered into exclusive talks on a deal that would allow it to carve out Monte dei Paschi’s performing loan portfolio. The Italian government, which holds a The 64.23% stake in Monte dei Paschi following a â¬ 5.4 billion state bailout is eager to see the lender return to private hands.
The rich north
UniCredit would welcome an attractive portfolio of clients concentrated mainly in the regions of northern Italy, the economic powerhouse of the country, as well as in the central region.
Loans to Monte dei Paschi customers amounted to â¬ 82.63 billion at the end of 2020, almost all in Italy. UniCredit, which is also active in markets such as Central and Eastern Europe, Austria and Germany, obtained 450.55 billion euros in loans.
Retail banking takes the lion’s share of Monte dei Paschi’s operating income, at 2.01 billion euros.
“[The] UniCredit’s strategic rationale is to rebalance the commercial network towards north-central Italy, “Luigi Tramontana, financial analyst at Bank Akros, said in an email.
Around 77% of Monte dei Paschi branches are concentrated in the northern and central regions of Italy, and UniCredit said the deal would allow it to increase its market share from 17% in Tuscany, by 4%. in Lombardy and Emilia Romagna and 8% in Veneto. It would add around 3.9 million new clients, â¬ 80 billion in loans, â¬ 87 billion in deposits and â¬ 62 billion in assets under management.
Different this time?
This is not the first time that UniCredit has been mentioned as a potential contender for Monte dei Paschi. In 2020, towards the end of the tenure of former CEO Jean Pierre Mustier, it was reported that the Italian government was pushing UniCredit to buy Monte dei Paschi in its entirety.
The deal would have been difficult for several reasons. In November 2020, Monte dei Paschi faced several investor lawsuits for alleged mismanagement, risking bills of up to â¬ 10 billion, although it subsequently struck a deal with a former major shareholder that will significantly reduce its legal risk.
Monte dei Paschi also had a large bad debt surplus totaling â¬11.4 billion in the third quarter of 2020, although this figure was reduced to 4 billion euros at the end of the year thanks to an agreement with the bad debt manager AMCO – Asset Management Co. SpA.
Mustier has repeatedly said UniCredit is adamantly opposed to mergers and acquisitions, and for a time a deal seemed extremely unlikely. But now the picture is different.
Under the current proposal, UniCredit will not assume any legal, NPL or excess staff risks from Monte dei Paschi, which makes the deal very different from a simple merger, Bank Akros’s Tramontana said.
Tramontana said recent leadership changes at UniCredit and in Italian politics are also changing attitudes towards the deal.
Mario Draghi, who was sworn in as Italian Prime Minister in February 2021, was keen to encourage mergers as a way to address weaknesses and inefficiencies in the European banking system during his tenure as ECB President, which ended. took place from 2011 to 2019.
Andrea Orcel, former head of investment banking at UBS Group AG and became CEO of UniCredit in April, told analysts in May that he would consider mergers and acquisitions if it helps move the bank’s strategy forward. .
Not everyone is happy with the proposed deal, with one Italian newspaper calling it a “joyless marriage”.
The Italian Treasury has been criticized by banking unions and the center-left Democratic Party, which are concerned about the loss of jobs for Monte dei Paschi employees and the loss of the bank’s brand and territorial roots in Tuscany.
The 5-star Italian populist movement has historically opposed a massive Monte dei Paschi sell-off and takes a dim view of âsellingâ to a major international bank instead of exploring solutions such as an issue. public actions.
âUniCredit and the Italian Treasury are now stuck in negotiations, and the end result is still very uncertain,â said Barbara Casu Lukac, director of the Center for Banking Research at Bayes Business School.
“Mario Draghi will have the final say on the deal, and in some quarters this is read as a signal that the deal will be done … Many political commentators believe he was behind the change of mind. UniCredit. “