European policymakers have been longing for bigger banks across the continent, and Italy might be on the verge of delivering just that with a bumper round of mergers and acquisitions. Years after a sovereign debt crisis and a government rescue for Banca Monte dei Paschi (BMPS), the Italian banking sector is now catching the attention of many analysts for potential consolidation. Antonio Reale, co-head of European banks at Bank of America, believes that significant changes are on the horizon for Italian banks within the next 12 months.
UniCredit and BMPS Leading the Way
UniCredit is at the forefront of this potential consolidation with its impressive quarterly profit beats and surplus capital. With earnings of 8.6 billion euros last year, up 54% year-on-year, UniCredit has been able to please investors through share buybacks and dividends. On the other hand, BMPS, which faced a government bailout in 2017, is now on the path to re-privatization in accordance with European regulations. Economy Minister Giancarlo Giorgetti reaffirmed Italy’s commitment to divesting the government stake in BMPS during a recent statement.
Potential Partnerships and Deals
According to Nicola De Caro, a senior vice president at Morningstar, domestic consolidation in markets like Italy, Spain, and Germany is more likely than cross-border mergers due to structural impediments. Despite recent consolidation efforts in the Italian banking sector, involving Intesa-Ubi, BPER-Carige, and Banco-Bpm, there is still a significant number of banks operating independently.
UniCredit CEO Andrea Orcel has expressed openness to potential deals if market conditions were to change. However, he highlighted the need to consider the strategic implications of any acquisitions, especially in light of the bank’s current performance. Paola Sabbione, an analyst at Barclays, also noted that any potential M&A activity in the Italian banking sector would need to meet a high standard.
European officials have been vocal about the necessity for bigger and more profitable banks in the region. French President Emmanuel Macron, for instance, emphasized the importance of greater consolidation in Europe’s banking sector. However, there is still some skepticism surrounding mega-deals, as seen in Spain’s opposition to BBVA’s bid for Sabadell.
Differences between Spain and Italy
Antonio Reale from Bank of America highlighted the differences between Spain and Italy in terms of banking market consolidation. While Spain has made significant progress in consolidating its banking sector post the Global Financial Crisis, Italy remains fragmented with various medium-sized banks operating independently.
The Italian banking sector is poised for potential mergers and acquisitions as European officials and industry experts advocate for larger and more stable banks across the continent. With UniCredit and BMPS leading the way, there is a strong possibility of significant changes in Italy’s banking landscape in the near future. It remains to be seen how these potential partnerships and deals will unfold in the coming months amidst market uncertainties and regulatory challenges.
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