Monte Paschi

(Bloomberg) — The last time Banca Monte dei Paschi di Siena Spa bought another lender, it ended in tears.

That’s why much of Italy was shocked by the announcement on Friday that the world’s oldest bank – still under a government bailout – wants to buy out bigger competition for 13.4 billion euros ($14.1) in an all-shares deal Rival Mediobanca Spa ($14.1 billion).

“A few months ago, this would have been an unthinkable move,” said Stefano Girola, CIO of Brescia, Italy. “The bank no one wanted has given itself center stage”.

The development reflects Monte Paschi’s rapid turnaround in recent years under CEO Luigi Lovaglio, which has allowed the government to reduce its stake. It also expressed Italy’s interest in creating a new national banking championship.

Roma has full confidence in Paschi’s management, which “has achieved excellent results, has a plan and a market proposal and we will be happy if the market responds.” The proposal is “completely transparent and for the sake of Italy” economic benefits.”

There have been a series of transactions in Italy’s banking sector in recent months. Unicredit Spa is one of the two largest lenders competing against BACO BPM SPA, currently in third place. But Paschi’s plan to take over Mediobanca would create a “powerful third player”.

This will serve as a counterweight to larger lenders. And, since the Italian government remains Monte Paschi’s largest shareholder, it will help Prime Minister Giorgia Meloni keep much of the country’s financial services sector under domestic control.

It would also strengthen Rome’s influence over the General, the insurer and major holder of the Italian Monarch bonds, which counts Medibaca as its largest shareholder. Carlo Alberto Carnevale Maffe, who teaches business strategy at Milan’s Bocconi University, said greater control there would give the government more control over “the whole of banking and insurance.” value chain” has a greater impact.

Generali recently signed a preliminary agreement to merge its asset management business with French banking group BPCE. Bloomberg News reports that officials in Rome have been looking for ways to maintain Italy’s influence, while shareholder Francesco Gaetano Caltagirone had previously sought to oust General CEO Philippe ·Philippe Donnet, who opposed the deal.

Mediobanca’s takeover is far from a deal – Paschi said before announcing the deal it was offering a 5% premium to Mediobanca’s share price, as shares fell 6.9% to 6.49 euros in Milan on Friday, with the cushion Gone. During the same period, Mediobanca rose 7.7% to 16.47 euros.

Investor skepticism can also be an obstacle. KBW analyst Hugo Cruz said in a reaction note that the One-Sight deal appears to have “limited chance of success.”

However, Meloni can count on the support of two powerful billionaire clans: the Del Vecchios, who control thunder dog maker Essilorluxottica SA and the construction tycoon Caltagirone family. The families bought a large stake in Monte Paschi from the government in November and have since expanded their holdings.

The Italians and billionaires do not own a majority stake in either lender, meaning they will face the challenge of convincing other shareholders to sign on to their plans. But if they manage to do so, it would give them clout as one of Italy’s largest banks.

Girola said the blessing of the government and two billionaire dynasties effectively turned Monte Paschi into “a buyer who could influence the entire Italian financial system.”

Madibonkar views the move as hostile and is likely to ultimately reject it, according to people familiar with the matter.

The proposed acquisition represents a stunning turnaround for the Siena lender. Founded in 1472 to finance agricultural and commercial activities, it continued to expand throughout the peninsula, becoming one of Italy’s largest banks.

The story of Monte Paschi’s downfall began in 2007, when it acquired Banca Antonveneta Spa from Spain’s Banco Santander SA for €9 billion, more than Santander had purchased just weeks earlier. The lender purchased a third. The deal cost Paschi as the global financial crisis rocked Europe’s economies and would eventually force it into years of restructuring and litigation.

The bank was first freed by the Italian government in 2009 and nationalized eight years later.

Monte Paschi’s profitability has improved significantly since Lovaglio took over in 2022. Between lower costs and higher interest rates, the bank was able to resume dividend payments. This gives Italy an opportunity to start privatizing lenders.

Still, few would have expected Monte Paschi to turn to a possible buyer so soon.

The acquisition will allow it to increase its wealth management business and cut annual costs by 300 million euros, Paschi said in a statement on Friday. The enlarged bank will also be able to “accelerate €2.9 billion of tax-deferred assets to obtain capital benefits.”

Some were as surprised by Monte Paschi’s proposed goal as by the move itself. Morgan Stanley analysts Pamela Zuluaga and Alvaro Serrano said it was an “unexpected combination,” noting that while Medibaka specifically It engages in asset and wealth management, consumer finance and investment banking services, but Monte Paschi relies on traditional retail and commercial banking services.

Carnevale, the business professor, said it was an inherently political move that would likely cause markets and institutional investors to react.

Others say different motives may be at work.

“I see Paschi’s bid for Mediobanca as a defensive move to reduce its speculative appeal,” said Margherita Strazzari, asset manager at Sempione Sim.

– With assistance from Alberto Brambilla and John Deane.

(Update with Secretary of the Treasury in fifth paragraph.)

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