Opportunities for Mega Merger in Italy’s Banking Sector
European policymakers have long desired larger banks across the continent, and Italy may be on the verge of fulfilling that wish with a potential wave of mergers and acquisitions in the banking sector. After enduring a sovereign debt crisis in the region and a government bailout that saved Banca Monte dei Paschi (BMPS) from collapse, industry experts are now closely monitoring the Italian banking landscape for signs of consolidation.
Antonio Reale, co-head of European banks at Bank of America, expressed his belief that significant changes could be on the horizon for Italy’s banking sector. He noted that BMPS has undergone rehabilitation and is now in need of re-privatization, while UniCredit has amassed a substantial surplus of capital. Additionally, the Italian government has unveiled a new industrial agenda, paving the way for potential mergers and acquisitions in the banking industry.
UniCredit has been a standout performer in the market, consistently exceeding profit expectations and rewarding investors through share buybacks and dividends. The bank reported earnings of 8.6 billion euros last year, marking a 54% increase from the previous year. On the other hand, BMPS, which was rescued in 2017, is mandated to return to private ownership as part of an agreement with European regulators and the Italian government.
Nicola De Caro, senior vice president at Morningstar, emphasized the potential for consolidation in markets such as Italy, Spain, and Germany. While domestic mergers are more likely than cross-border deals due to structural barriers, recent consolidation efforts in Italy involving Intesa-Ubi, BPER-Carige, and Banco-Bpm have demonstrated a willingness among banks to explore strategic partnerships.
Despite the progress made in consolidating the Italian banking sector, there remains a significant number of medium-sized banks leading to fragmentation. De Caro suggested that UniCredit, BMPS, and other medium-sized banks could play a pivotal role in shaping the future of the industry through potential mergers and acquisitions.
UniCredit CEO Andrea Orcel indicated a willingness to explore deals in Italy under the right market conditions. However, he acknowledged that the bank still trades at a discount relative to its peers, making strategic acquisitions challenging without diluting shareholder returns. Orcel affirmed that UniCredit remains open to opportunities for growth and expansion if market dynamics shift in the future.
Paola Sabbione, an analyst at Barclays, highlighted the high bar for Italian banking mergers and acquisitions, noting that while BMPS and UniCredit are actively seeking partners, no bank is in immediate need of a deal. The cautious approach reflects the industry’s focus on strategic partnerships that offer long-term value and sustainability.
European officials, including French President Emmanuel Macron, have emphasized the importance of creating larger, more robust banks in the region. Macron’s call for greater consolidation in the banking sector aligns with the broader push for financial stability and competitiveness across Europe. However, skepticism remains regarding the feasibility of mega deals, as seen in Spain where the government opposed BBVA’s bid for Sabadell in May.
Reale from Bank of America underscored the differences between the banking markets in Spain and Italy, noting that Spain has made significant strides in consolidation following the Global Financial Crisis. In contrast, Italy’s banking sector remains fragmented, presenting unique challenges and opportunities for mergers and acquisitions.
As the Italian banking industry navigates a changing landscape, stakeholders are closely monitoring potential merger opportunities that could reshape the sector. With UniCredit, BMPS, and other key players poised to drive consolidation efforts, the coming months could see significant developments in Italy’s banking sector. Stay tuned for updates as the industry continues to evolve and adapt to changing market dynamics.