The waltz of Italy’s financial mergers is in full swing. Credit Agricole has started talks with Italian lender Banco BPM, which is worth almost a tenth of its market capitalization. The French group’s Italian business and a consumer credit alliance with its smaller rival promise attractive cost savings. But the deal may also force Unicredit boss Jean Pierre Mustier to take to the dance floor.
The current frenzy of mergers and acquisitions is a consequence of the strengthening of the national leadership of Intesa Sanpaolo through the acquisition of UBI Banca this summer. So far, Credit Agricole, of 21,000 million euros, and Banco BPM have only signed a confidentiality agreement (to share information and data). Il Messaggero newspaper reports that neither of the two has formally appointed advisers for the operation. But it is a first step towards a merger agreement, according to sources close to it.
Cross-border banking arrangements are complex and bring few financial benefits. But for Credit Agricole CEO Philippe Brassac, a union in Italy would make sense. The French bank gets 2 billion euros of revenue from its Italian commercial bank. Furthermore, the two lenders know each other well through consumer finance group Agos, in which Credit Agricole has a 61% stake.
Suppose Brassac can start 5% of the operating costs of BPM and its own Italian business unit, in line with the agreement between Intesa and UBI. That would generate about 200 million euros of annual savings before taxes. Taxed and capitalized, they would be worth nearly $ 1.5 billion in today’s money, more than enough to cover a 30% premium. The rewards could be higher if some of the French bank’s asset and wealth management operations are also included.
However, this Franco-Italian union is not done. The increasingly protectionist Italian government may not like to see a large bank in its richest region sold to a foreign player. It could try to veto the deal, or promote an Italian alternative. Also, a possible deal puts pressure on Mustier. So far it has avoided domestic mergers and acquisitions, but risks facing two stronger rivals at its Italian base.
For Unicredit, buying BPM may not be a ballroom dance. You are sitting on 10 billion euros in bad loans, and you may need more capital. However, if Mustier stays on the sidelines, he will likely come under pressure from the government to buy the troubled lender Banca Monte dei Paschi di Siena.
Unicredit will find it increasingly difficult to stay out of Italy’s M&A dance.