The European policymakers have been advocating for larger banks across the continent for quite some time now. Italy appears to be on the brink of fulfilling this desire with an impending wave of mergers and acquisitions in its banking sector. Despite facing a sovereign debt crisis and requiring a government bailout to rescue Banca Monte dei Paschi (BMPS) from collapse, Italy’s banking sector is now under scrutiny for potential growth.
According to Antonio Reale, co-head of European banks at Bank of America, it is challenging to overlook the probability of significant changes occurring within Italy’s banking sector within the next 12 months. With BMPS having undergone rehabilitation and requiring re-privatization, along with UniCredit boasting excess capital, the stage is set for substantial transformations. UniCredit’s remarkable performance, with an 8.6 billion euros profit last year, has caught the attention of investors, thereby indicating a positive trajectory for the bank. Additionally, BMPS, which was rescued in 2017, is bound by regulations to transition back into private ownership.
Market Perspective and Opportunities
Nicola De Caro, senior vice president at Morningstar, suggests that Italy, Spain, and Germany present opportunities for market consolidation. While domestic mergers are more likely due to structural challenges hindering cross-border deals, internal consolidations are gaining momentum. The recent mergers involving Intesa-Ubi, BPER-Carige, and Banco-Bpm have set the stage for more significant transactions. UniCredit CEO Andrea Orcel has expressed openness to potential deals, contingent upon market conditions and shareholder approval.
Despite the potential for M&A in the Italian banking sector, analysts like Paola Sabbione from Barclays emphasize the need for sound evaluations and high standards for any proposed deals. While banks like BMPS and UniCredit may be seeking partners or targets for strategic alliances, urgency is not a prevailing factor. The European authorities, echoing sentiments of larger, more robust banks, are keen on fostering a stable banking environment. French President Macron and other officials have emphasized the importance of consolidation for the sector’s overall health.
Comparing Spain and Italy
Diverging views on banking consolidation exist between countries like Spain and Italy. Spain’s progress in consolidation post the Global Financial Crisis contrasts with Italy’s fragmented banking market. While Spain has undergone significant consolidation, Italy still possesses a multitude of mid-sized banks, necessitating a more nuanced approach. The skepticism surrounding mega deals, as evidenced by the Spanish government’s opposition to BBVA’s bid for Sabadell, indicates the complexity of forging large-scale mergers.
The Italian banking sector stands at a crucial juncture, poised for transformative changes through mergers and acquisitions. With banks like UniCredit and BMPS primed for potential deals, the coming months could witness substantial shifts in the industry. As Europe continues to advocate for stronger and more profitable banks, Italy’s banking landscape is likely to evolve significantly, paving the way for a more robust and resilient financial sector.