What will happen to Intesa, Unicredit and Banco Bpm
Covid also changes the Italian banking system: what future for Intesa, Unicredit and Banco Bpm? The article by Fabio Pavesi and Andrea Deugeni for Affaritaliani.it
Nothing will be the same again in the geography of the post-Covid Italian banking system. The kick-off of the new banking risk, perhaps the definitive one, was given by Intesa-Sanpaolo just before the outbreak of the pandemic, a year agoby going to the attack of Ubi , the fourth Italian bank, absorbed under the banner of the first institution of the country. Removed Ubi from the chessboard (and removed in time from a possible deadly embrace with MPS) and thanks to the pandemic, now everyone is looking around.
THE DEFINITIVE CONCENTRATION
Everyone knows that the concentration process can no longer be postponed. After all, the Italian system is still based on two great champions, two big ones, with Intesa stainless in its performances and with UniCredit ailing after Mustier management and on a group of medium-sized banks from Banco Bpm to Bper to Popolare di Sondrio that alone cannot more stay. The pandemic context does not help to stay adequately on the market. The interest margins will continue to remain asphyxiated and in 2021-2022 the levels of bad loans will return to grow, not at alarm levels, as in the NPL bubble of past years, but they will certainly raise the issue of new provisions and write-downs that will tend to squeeze the already sluggish profitability for so-called medium-sized banks.
THE MODEL THAT THE ECB WANTS: THREE GREAT NATIONAL CHAMPIONS
We need bigger actors with broad shoulders to absorb the repercussions of a difficult external context. The ECB has been asking for this for some time, wanting a system for Italy along the lines of its European competitors: two / three large banking groups and the territory covered by the smallest banks. This has been the case for years in Spain (Bbva, Santander and the banks) in France (Bnp; SocGen, Credit Agricole the three national champions) and in Germany (Deutsche Bank; Commerzbank and the regional Landesbank).
It is not clear why Italy should not adapt. There is too much production overcapacity in a traditional market attacked by Fintech and the giants of the Web, which have turned into para-banks. Too much overcapacity and poor profitability. Only the great national champions are holding onto profitability (with the exception of Germany), with ROEs (returns on capital) tending to 8-9%. On a smaller scale, profitability halves everywhere in Europe.
THE UNFINISHED ITALY: ONLY TWO BIGS AND A PLOT OF MEDIUM BANKS
Here then is the unfinished Italy. Two giants from European Serie A and then a sort of emptiness. Intesa-Sanpaolo with its over 1,000 billion assets, after the incorporation of Ubi, and UniCredit with its 930 billion. Behind them a kind of desert. The first largest bank in terms of size is Banco Bpm which stops at 180 billion; the chronic limp MPS is at 150 billion and BPER has assets of 93 billion.
THE THIRD GREAT BANK THAT STILL NOT HERE
As you can see, there is really no third major bank behind the Intesa / UniCredit duopoly. And the ballet between those who buy those, is now daily at least in the declarations and suggestions. The neglected MPS must be secured, which despite the rich dowry of the DTAs (deferred tax credits) that will go to the buyer is frightening, so much so that it has been on the market for some time without any obvious attraction.
MPS ONLY THE GREAT UNICREDIT CAN ABSORB IT, OTHERWISE STEW
Only a large bank can absorb the Tuscan bank that is losing revenues year on year and is carrying a legal dispute worth 10 billion. So here is the UniCredit hypothesis, the only one in the field, or alternatively go for a stew of MPS to be divided among several banks.
THE NIET OF DEL VECCHIO & C ON THE TUSCAN BANK
The Italian shareholders of UniCredit, with del Vecchio in the lead, have already expressed their disappointment on the MPS transaction. And then the rumors speculate that to thwart Mps, UniCredit could move by targeting Banco Bpm. Or even take Mps, but get the green light also on Banco Bpm or Bper. A healthy bank in compensation for a run-down bank. But in this way the theme of the third pole would remain unanswered once again.
THE MOST RATIONAL OPERATION FOR THE SYSTEM
Logic has it that the most rational operation not only for the protagonists, but also for the definitive reorganization of the credit system, is the wedding between Banco Bpm and Bper.
THE THIRD POLE BANCO BPM – B FOR A GROUP OF 300 BILLION ASSETS
A real marriage between equals that would give birth to the third strong bank in the country with assets of almost 300 billion. This would result in an actor with a national market share of around 14%; behind Intesa which has 21% and close to UniCredit also with 13-14%. The three banks would thus have about half of the banking market, with the other half divided between small banks and the mutual banks, now united under the two holding companies Iccrea and Cassa Centrale Banca. A structure in line with European competitors.
MARRIAGE BETWEEN EQUALS
A merger between the bank born from the marriage between the Popolare di Milano and Banco Popolare and the Emilian Bper does not have excessive overlapping of branches; it would have its heart in the rich areas of the country, a Lombard-Venetian triangle with rich Emilia. Furthermore, they are two healthy banks with many similarities and the merger would be card-to-card. Banco Bpm has long since closed under the CEO Giuseppe Castagna its post-merger reorganization process with Banco Popolare which brought the high chronic suffering of Banco into BPM's home starting with Italease and the old Lodi.
The mass of impaired loans has fallen over the years from a peak of over 23% to the current 7.5% with coverage of 50% and a net NPL ratio of 3.8%. Similar path on sick loans for Bper also dropped from the peak of 23% in 2016 to the current 7.8% with a net Npl ratio of 4%.
TWO TWINS
Almost twins on the asset quality front with Banco Bpm which has a lower Texas ratio of 39% against 55% of Bper. Banco Bpm, however, has gone further in cleaning and provisions, already expending future provisions in 2020 which led to write-downs of 1.3 billion against just over half a billion for Bper. Both Banco and Bper still have strong real estate guarantees on 60% of bad loans on bad loans in their portfolios, which protect them from bad future surprises.
BANCO BPM'S TRUTS
Furthermore, and not to be overlooked, Banco Bpm has three trump cards to spend. On the balance sheet, the bank led by Castagna has Dta for 1 billion which would favor integration and has a hidden capital gain on Italian government bonds for 850 million. And again Banco Bpm is very strong in the very profitable consumer credit market thanks to the 39% owned in Agos. Three qualities that are more than useful for marriage. For Barclays, the merger would see the birth of the third group which would have a Rote more than adequate at 6.4% in two years; with a Cet1 over 13%. For Deutsche Bank analysts, the new group will produce over one billion net profits from 2023 onwards.
THE BPER RACE
Bper is among the average banks the one that has grown the most in terms of size, a growth that has not prevented the cleaning from the ballast of the bad debts of the past. The 2020 budget saw a sharp surge in margins. Now it will have to integrate the 600 branches bought by Intesa after the merger with Ubi and recently appointed Piero Montani, formerly AntonVeneta, Bpm and Carige, who has a reputation as a great restructuring company, at the helm.
UNIPOL FIRST SHAREHOLDER TO 6% OF THE ITALIAN THIRD BANK
The hypothesis of the wedding, which would see Unipol first shareholder with 6% of the new entity, fueled the two shares, both up by 30% in the last three months. The market seems to really believe it. Now it will be up to the future moves of the protagonists to close the chess game towards the third banking center of the country.
Article published on Affaritaliani, here the full version.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/che-cosa-succedera-a-intesa-unicredit-e-banco-bpm/ on Sat, 17 Apr 2021 15:14:50 +0000.