The Future of Italian Banking: Is Consolidation on the Horizon?
In the wake of the sovereign debt crisis and the government rescue of Banca Monte dei Paschi (BMPS), Italy’s banking sector is once again under the spotlight. Analysts are predicting a wave of mergers and acquisitions (M&A) that could reshape the landscape of European banking.
Unlocking Potential through Consolidation
Antonio Reale, co-head of European banks at Bank of America, believes that Italy is ripe for consolidation. He points to the rehabilitation of BMPS and the excess capital held by UniCredit as signs that a merger may be on the horizon. In particular, UniCredit has been surprising markets with strong quarterly profit beats, earning 8.6 billion euros last year and pleasing investors with share buybacks and dividends.
A New Industrial Agenda
Italy’s government has also signaled a commitment to privatizing BMPS, which was saved in 2017 for 4 billion euros. Speaking in March, Italy’s Economy Minister Giancarlo Giorgetti stated that there is a specific commitment with the European Commission regarding the divestment of the government stake in BMPS. This move aligns with the government’s new industrial agenda, which aims to strengthen Italy’s banking sector.
Room for Consolidation
According to Nicola De Caro, senior vice president at Morningstar, there is still room for consolidation in markets such as Italy, Spain, and Germany. While recent mergers like Intesa-Ubi, BPER-Carige, and Banco-Bpm have taken place in Italy, there is still fragmentation at the medium-sized bank level. UniCredit, BMPS, and other medium-sized banks are likely to play a key role in future consolidation efforts.
Barriers to M&A
Despite the potential for mergers in the Italian banking sector, there are barriers that could hamper the process. UniCredit CEO Andrea Orcel has expressed caution about potential deals in Italy, citing market conditions and shareholder returns. Paola Sabbione, an analyst at Barclays, also believes that any mergers would need to meet a high bar and that no bank is in urgent need of a partner.
Looking Ahead
European officials, including French President Emmanuel Macron, have voiced the need for larger, more profitable banks in Europe. While there is consensus on the benefits of consolidation, there is also skepticism about mega deals. Differences between countries like Spain and Italy also play a role in shaping the future of banking mergers.
As the Italian banking sector undergoes transformation, investors and analysts are keeping a close eye on potential M&A activity. Stay tuned to Extreme Investor Network for the latest updates on the future of Italian banking and how it could impact the broader European financial landscape.