Why Unicredit’s aims on Mps worry Banco Bpm. Bloomberg Report
The Mps crisis and the scenarios of the Unicredit operation orchestrated by the Treasury analyzed by Bloomberg
Andrea Orcel is making the heads of Italian banks nervous. CEO of UniCredit SpA since April, he is overseeing the acquisition of the best parts of Banca Monte dei Paschi di Siena – a move that upsets the status quo in the world of the old Italian banking school. It could also kick off a new season of mergers and acquisitions – Bloomberg writes.
But that's all good news in the long process of unraveling Monte Paschi, the nearly 600-year-old bank that was hit by the global financial crisis and was bailed out by the government. It could simply trigger the necessary changes in Italy's hyper-banking, low-profitable financial industry to reshape it for the post-Covid era. Better still, the Monte Paschi deal could be an example for other European countries where M&A has been blocked by bureaucratic and legal obstacles.
Orcel is as close as possible to closing the transaction. On September 2, UniCredit, Italy's second largest bank by assets, confirmed its due diligence on Italy's fourth largest bank was on track. UniCredit wants to choose portions of Monte Paschi to grow its retail clients in the affluent north of Italy and make it a closer rival to Italy's largest bank, Intesa Sanpaolo SpA.
In many ways, it is the ideal time to heal the wound of Monte Paschi. The crisis has cost Italian taxpayers billions of euros since the bank was nationalized in 2017, yet it still languishes at the bottom of the rankings of eurozone banks.
For UniCredit, any deal would be capital neutral, according to Orcel. You can expect the state to take care of Monte Paschi's bad and non-performing loans, as well as the legal and future claims of some 6,000 employees. (The government has amortized layoffs in the past, including during the restructuring of Fiat in 2001). In return, Italy gets rid of a stain on the banking landscape which, even if it is no longer a threat to financial stability, would be enough to trigger panic with a collapse.
A viewer could be forgiven if they thought it's all part of a grand plan – or at least an involuntary reunion of characters already involved in the drama. In 2007, Orcel – with Merrill Lynch at the time – advised on the sale of the Italian regional bank Antonveneta to Monte Paschi for 9 billion euros (11 billion dollars), an expensive deal from which the latter's balance sheet he never recovered. Mario Draghi, Italy's technocrat prime minister and former president of the European Central Bank, was the Italian banking regulator who gave the green light to the Antonveneta deal. Pier Carlo Padoan, the new president of UniCredit, was the finance minister who nationalized Monte Paschi in 2017.
The real advantage, however, is still to be played. A selective purchase of Monte Paschi begins to have real value if it triggers a reorganization of the moribund Italian banking system. This prospect makes other bank heads in the country tremble, especially those who may end up being prey. There are so many: At the end of 2020, the sector had 474 banks, 23,481 branches and 275,224 bank employees, according to the Bank of Italy. The system is inflated.
Smaller banks are nervous about UniCredit's ambitions and the likelihood of a free-for-all M&A if the Monte Paschi deal goes through. Milan-based Banco BPM SpA CEO Giuseppe Castagna – clearly looking for some sort of defense against potential buyers – made headlines in August when he said it was time to create another large banking group besides UniCredit. and Intesa SanPaolo. Banco BPM would be a likely target for UniCredit's stated goal of strengthening its business in the north.
But time must be called on the Italian banking status quo. For one thing, Italian banks have only begun to cope with the aftermath of the pandemic. The debt moratoriums ended only in June. Fitch Ratings estimates the industry's gross NPL to total loan ratio could rise to more than 10% this year. The two majors – Intesa Sanpaolo and UniCredit – have NPLs below 5% at the end of 2020, the lowest in a decade. But the smaller banks are struggling. Sclerosis will turn to putrefaction if the system is not shaken. Italy's real gross domestic product per capita will still be below 2000 levels after the post-Covid recovery, the OECD noted this month.
Scope Ratings, based in Germany, estimates that on average Italian banks are companies that have been destroying value for more than 10 years, once the cost of capital has been taken into account. Furthermore, under some measures, the country's banks have failed in their duty to support businesses and entrepreneurs. Credit is provided not on the basis of a firm's merit but on the basis of a customer's history with the bank, Andrea Alemanno of the research firm Ipsos recently told me. By clinging to their clubby and insider management style, Italian banks make Italy go bankrupt.
The country's capital market is shallow compared to the rest of Europe, not to mention the United States. Italian businesses need competitive financing from different banking models, and from banks across Europe. All this explains why Italy, despite its entrepreneurial fervor, has only produced one technological unicorn, the Yoox luxury etailer.
Italy is not alone in this sad state. It is a disease shared by Europe, especially Germany. This is why the outcome of Orcel and UniCredit's game with Monte Paschi is crucial. Ironically, one of the biggest critics of the European banking status quo was Draghi when he was at the ECB. Any failure by your government to support change in the Italian banking sector as long as it has a chance will be a stain on its record.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/unicredit-mps-crisi-banco-bpm/ on Mon, 27 Sep 2021 06:14:29 +0000.