Italian bank reform to pave way for Monte Paschi takeover

Ft.com – The Italian government’s decision to reform its medium-sized co-operative banks was partly driven by a desire to secure a domestic takeover of the struggling Monte dei Paschi di Sienna, say people familiar with the plans.

The government of Matteo Renzi, Italy’s reformist prime minister, on Tuesday approved plans for a long-awaited overhaul of governance of Italy’s 10 largest “popolari” banks, expected to pave the way for consolidation in a sector with more than €500bn in tangible assets.
If approved by Italy’s parliament over the next 60 days, the overhaul will see banks, including Banco Popolare, Banca Popolare di Milano and UBI Banca, forced to become joint stock companies. The popolari banks’ one shareholder, one vote governance has in effect allowed banking unions to control strategy and, in several instances, block proposed mergers.

The overhaul of the popolari is in line with Mr Renzi’s reformist agenda and follows moves to cut back the control of lobby groups across Italian society from unionists to the number of parliamentarians.
But four people with direct knowledge of the matter said the reform was drawn up also with a view to creating the domestic merger partner for Monte Paschi, which is embarking on its fourth capital raising in six years, having been the biggest overall loser of October’s comprehensive stress tests.
Monte Paschi, with a market capitalisation of €2.5bn and the receipt of four state bond bailouts, has put itself up for sale while under pressure from the ECB to raise a further €2.5bn in additional capital, having burnt through the €5bn raised last year.

One person close to the bank said support was growing “among stakeholders and shareholders” for Monte Paschi to be part of a domestic merger to create a significant rival to compete with Italy’s two largest banks, UniCredit and Intesa Sanpaolo.
UBI Banca, a northern based popolari bank with €121.3bn in tangible assets, is widely considered the most likely integrator for any consolidation in the sector, according to bankers and analysts. It is one of the most solidly capitalised Italian banks with a core Tier 1 ratio of 12.6 per cent.
“If the reform passes, UBI is an option, although it is not the only option [for Monte Paschi],” said a senior Italian official.
Mr Renzi indicated he was in favour of mergers telling reporters Italy had “too many bankers and too little credit”.

Together the 10 banks affected by the reform are worth more than €500bn in assets.
Mediobanca analysts Antonio Guglielmi and Andrea Filtri said the reform, if passed by parliament, “creates the perfect framework for M&A in the popolari”. “Embarking on the required governance changes could allow popolari to consider M&A options with troubled limited banks post-AQR,” Mr Guglielmi and Mr Filtri added.
Monte Paschi’s management is in talks with the ECB to finalise its restructuring plan and €2.5bn capital increase.

According to people close to the bank, its restructuring is being personally overseen by Daniele Nouy, president of the newly created supervisory council at the European Central Bank who would also be the ultimate supervisor of any M&A involving the bank.
Another merger option being touted by bankers is a tie up between Banca Popolare di Milano and Carige, a Genoan bank that also failed the comprehensive assessment. None of the banks were available to comment.

The legal change put forward by the government has been fiercely opposed by local banking unions and politicians. Italy’s midsized lenders have traditionally had close ties to local communities and have argued that mergers could deprive some towns and regions of their own bank.
The governance of popolari has come under scrutiny from the EU and International Monetary Fund as their non-performing loans have spiralled and credit flows have slowed. Critics say the banks’ lending was poorly vetted and influenced by friendships and family connections.

Rachel Sanderson
“Italian bank reform to pave way for Monte Paschi takeover”
ft.com
January 21, 2015

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