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Sector
Financials
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Mid Cap
Market Cap £1.91bn
Enterprise Value £14.76bn
Revenue £4.65bn
Position in Universe 93rd / 717

BREAKINGVIEWS-Italian bank consolidation gets messier from here

Thu 16th July, 2020 10:41am
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.) By Lisa Jucca MILAN, July 16 (Reuters Breakingviews) - Intesa Sanpaolo’s ISP.MI bold bid for smaller competitor UBI Banca UBI.MI , Europe’s largest since the euro crisis, is jumbling the chessboard of Italian banking. If successful, the around 3.5 billion euro unsolicited all-share offer will remove Italy’s most attractive mid-sized target from the market, and raise pertinent questions about the domestic strategy of Intesa’s 20 billion euro rival UniCredit CRDI.MI . For remaining lenders, like Banco BPM BAMI.MI , looking to bulk up to combat poor returns, it makes life more complicated. Intesa’s move has turned the 2 billion euro lender run by Giuseppe Castagna from an ideal partner to a banking orphan. Like UBI, the Milan bank was long viewed as a prime candidate to join Italy’s next consolidation round. Being relatively close in market capitalisation and revenue pre-pandemic, the two could have built Italy’s third-largest banking force. And hacking 5% off estimated 2020 combined expenses might have generated nearly 2 billion euros of value for shareholders. Castagna now faces tough deal choices. UniCredit, the first port of call, could replicate Intesa’s blueprint with Banco BPM to save on costs and boost its footprint in wealthy Lombardy. Moreover, virus-depressed stock prices would produce accounting benefits and enhance the combined bottom line. Boss Jean Pierre Mustier has made clear he doesn’t plan to expand at home, though pressure on the board from politicians seeking a more effective competitor to Intesa could change the equation. Alternatively, France’s Credit Agricole CAGR.PA , which operates more than 1,000 Italian branches, and BNP Paribas BNPP.PA , which owns Italy’s BNL, could also benefit from an Italian merger, but only if substantial costs could be wrung out. That would risk local backlash. BPER Banca EMII.MI is the next-best Italian option. The Emilia-Romagna lender is slated to buy more than 500 branches from Intesa if its UBI bid succeeds. That would boost BPER’s network by nearly 40% and bring it in line with Banco BPM’s. Yet the integration will take years, ruling out any immediate tie-up. This leaves state-controlled Banca Monte dei Paschi di Siena BMPS.MI as a further, less appealing option. The bank’s market size has shrunk to 1.8 billion euros since Rome nationalised it in 2017. It’s attempting to put its bad loans problem behind it and faces 4.8 billion euros of legal claims. Rome, even with a diluted position in any stock-based deal, would be an intrusive shareholder. From every angle, Italy’s next bank M&A step will be messy. On Twitter https://twitter.com/LJucca CONTEXT NEWS - Intesa Sanpaolo, Italy’s biggest bank by market capitalisation, formally launched on July 6 its unsolicited all-share offer for smaller domestic rival UBI Banca. The offer is worth about 3.5 billion euros at current market prices. - UBI Chief Executive Victor Massiah dismissed Intesa’s bid as anticompetitive in an interview with the Financial Times published on July 14. - Insurer Cattolica Assicurazioni said on July 13 that it will tender all of its UBI shares, equivalent to about 1% of capital, to Intesa. - For previous columns by the author, Reuters customers can click on JUCCA/ - SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Italy's Cattolica to tender its UBI Banca shares in Intesa bid urn:newsml:reuters.com:*:nS8N28D0AI FT interview https://www.ft.com/content/4788c0b2-96a1-4c25-bcdd-ac6fb6595219 BREAKINGVIEWS-Italian $4 bln bank deal may suit government most urn:newsml:reuters.com:*:nL8N2E8213 BREAKINGVIEWS-Regulator clash makes Intesa’s UBI bid more costly urn:newsml:reuters.com:*:nL8N2DN2D5 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Rob Cox and Oliver Taslic) ((lisa.jucca@thomsonreuters.com ; Reuters Messaging: lisa.jucca.thomsonreuters.com@reuters.net))
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