Monte Paschi ‘Unthinkable’ Move on Larger Rival Stuns Italy – Mint

(Bloomberg) – The last time Banca Monte dei Pacidi Siena Spa was bought by another lender ended in tears.

That's why many in Italy were shocked to wake up on Friday to the announcement that the world's oldest bank, which is subject to a government bailout, wants to buy larger rival Medioban Caspa in an all-stock deal for 13.4 billion euros. ($14.1 billion).

“A few months ago, this would have been an unthinkable move,” Stefano Girola, CIO of Italy-based Brescia, said of Fi-Mep. “The bank that no one else wanted put itself at the center.”

The development reflects Monte Paschi's rapid transformation in recent years under chief executive Luigi Lovaglio, which allowed the government to reduce its stake. It also represents Italy's interest in creating a new national banking champion.

Roma has “full confidence in the Paschi management team who have achieved exceptional results, planned and made a market proposition. If the market responds, we will be happy”, said Giancarlo. Finance Minister Giorgetti said on Friday. The offer is “fully transparent and in the interest of the Italian economy.”

There has already been a treatment in the Italian banking sector in recent months. UnicRedit SPA, one of the two largest lenders, is vying to acquire the current number three, Banco BPM SPA.

It acts as a counterweight to larger lenders. And since the Italian government remains Monte Pasti's largest shareholder, Prime Minister Giorgia Meloni will help keep much of the country's financial services sector under domestic control.

It would also strengthen Rome's influence over the generals, who were the insurers and major holders of Italy's sovereign debt, counting the Mediobanca as its largest shareholder. Carlo Alberto Carnevale Maffe, who teaches business strategy at Milan's Bocconi University, told the government there that it would further destabilize “the entire banking and insurance value chain.”

Generali recently signed a preliminary agreement to integrate its wealth management operations with French banking group BPCE. Rome officials are looking for ways to maintain Italy's influence in the deal, while shareholder Francesco Gaetano Cartagiron, who had previously tried to oust General CEO Philippe Donetto, It opposes the deal, Bloomberg News reported.

Mediobanca Takeover is far from a done deal. Paschi said the deal was a 5% premium to Mediobanca's stock price before it was announced. During the same period, Mediobanca rose by 7.7% to 16.47 euros.

Investor skepticism could also be a hurdle. KBW analyst Hugo Cruz said in a reaction note that at first glance the deal appears to have a “limited chance of success.”

But Meloni can count on support from two powerful billionaire clans: the Del Vecchios, who control Ray-Ban maker Essilor Luquistica SA, and the construction tycoon Caltagiron family. The family bought a significant stake in Montepaci from the government in November and has since expanded its holdings.

Neither Italy nor the billionaire owns a majority in either lender. This means they face the challenge of convincing other shareholders to sign on to the plan. But if they can do so, it would make them an influential investor in what will become one of Italy's largest banks.

According to Girola, the blessings of the government and a 20-billionaire dynasty have effectively turned Montepaci into “a buyer with influence over the entire Italian financial system.”

Mediobanca considers the move hostile and will ultimately veto it, according to a person familiar with the matter.

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

The story of Monte Pasti's downfall began in 2007 when it acquired Banca Anton Veneta Spa from Spain's Banco Santander SA for €9 billion. When the global financial crisis rocked Europe's economy, the deal left Paschi racked with losses and ultimately pushed it into years of restructuring and litigation.

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

Since Lovaglio took over in 2022, Monte Paschi has seen a significant increase in profitability. Between his cost cuts and higher interest rates, banks were able to resume paying dividends. It gave Italy the opportunity to start privatizing its lenders.

Still, few would have expected Monte Pasti to quickly turn from a potential takeover target to a possible buyer.

In a statement on Friday, Paschi said the acquisition would allow it to add asset management operations and reduce annual costs by 300 million euros. Enlarged banks will also be able to “accelerate the use of €2.9 billion” in deferred tax assets and enjoy capital benefits.

Some were surprised by Monte Pasti's proposed target. This is an “unexpected combination,” said Morgan Stanley analysts Pamela Zuluaga and Alvaro Serrano. Mediobanca specializes in asset and asset management, consumer finance and investment banking services, while Monte Paschi says it relies on traditional retail and commercial banking services.

It's an inherently political move, said Carnevale, the business professor, who could react to the market and institutional investors.

Others said a variety of motives could be at work.

“I think Pasci bid on Mediobanca as a defensive move to reduce its own speculative appeal,” said Margherita Strazzari, asset manager at Sempione Sim.

– Support from Alberto Brambilla and John Dean.

(Updated with Minister of Finance in paragraph 5.)

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