Consolidation in Italy’s banking industry will probably be postponed – again.
Potential tie-ups were high on the agenda of the bankers who gathered on Saturday in the northern town of Brescia for the Assiom Forex conference, but no one seemed ready to take the first step.
The current regulatory framework and Italy’s poor economic prospects will probably delay deals that analysts see as the solution for the sector’s weak performance.
“The execution risk of any banking deal is high and this is hampering M&A in the country’s industry, ” said Andrea Munari, chief executive officer of BNP Paribas SA’s BNL Italian unit.
“The trigger for a new wave of deals may be prolonged lower returns on capital, which could leave lenders with no alternative but scaling up.”
Italy’s mid-size banks are still struggling to cope with the aftermath of the global financial crisis, and while non-performing loans have gone down and valuations are rebounding from rock-bottom levels, solid profitability remains elusive.
Regulators have been advocating consolidation, given the necessity to continue reducing costs and improving margins.
“Small and medium-sized banks are the most affected and struggle to strengthen their balance sheets owing to high costs and difficulties in gaining access to the capital market, ” Bank of Italy governor Ignazio Visco said. “Significant economies of scale and scope are needed to successfully fund the real economy.”
Deal-making in the Italian banking sector all but came to a standstill in the last three years, compared with the frothy activity of the decade after 2000. The few deals that have taken place since the 2017 merger of Banco Popolare and Banca Popolare di Milano were designed purely to rescue ailing small lenders.
Banco BPM SpA, UBI Banca SpA, Banca Monte dei Paschi di Siena SpA and BPER Banca SpA have often featured as both potential targets and buyers in the Italian press. Analysts and bankers have studied all of the possible combinations between them amid speculation over the past year that informal talks were held among the parties.
Giuseppe Castagna, CEO of Banco BPM, said last week that the bank has “already done its part on M&A” and that the new business plan to be announced in March will be based on a standalone strategy. UBI CEO Victor Massiah echoed his words at the Assiom meeting.
Alessandro Vandelli of BPER was somewhat more optimistic.
While “BPER is growing organically, ” Vandelli said he’s keeping an eye out for changes in the ECB’s approach toward mergers. The eurozone’s supervisor in the past set high hurdles for mergers, asking for steep capital increases and governance overhauls.
Now, though, the mood in Frankfurt seems to be more favourable, he added. The bad-loan legacy, which had to be resolved before any possible merger, has now been significantly reduced.
Another potential trigger for deals could be Italy’s impending sale of the majority stake in Monte Paschi it acquired with a 2017 bailout. The European Commission expects the treasury to exit the bank by 2021, though plans on how exactly it will do so have been postponed.
Paschi chairman Stefania Bariatti poured cold water on expectations for short-term developments. Completing the sale of the bank’s residual non-performing loans, she said, is “preliminary to any other deal”.
Source: Economic Times