Monte dei Paschi di Siena, the world’s oldest bank still in operation, is very much a ship currently tacking through market stormy seas. Its intention is to strengthen its role among the Italian banking system. In 2017, the Italian government bailed out the bank. Second, now having bought 18% of Germany’s Commerzbank, it has made a euro 13bn ($15.6bn) all-share, hostile bid for Italy’s Mediobanca. With CEO Luigi Lovaglio, though, under fire from Mediobanca, don’t count Intesa’s rival for Italian banking consolidation just yet. He thinks this deal is an important step in the industry’s ongoing consolidation bid.
Monte dei Paschi di Siena, established in 1472, is having a storied past. Yet, in recent years, the bank has been put to a very serious test. The bank’s financial difficulties forced a government rescue, and the restructuring of the bank was intended to shore up its operations. Under Lovaglio’s leadership, the bank is decisively doubling down on its high-risk, high-reward acquisition attempt. They view this step as the initial salvo of homegrown consolidation for Italian banks.
Lovaglio expressed confidence in the deal, stating, “The market situation will not impact our deal.” He hopes to have the deal finalized by July. He hopes Monte dei Paschi’s merger with Mediobanca will return the institution to a leading place in the banking firmament. This is only the first phase of the consolidation, I think, and likely we will have a second phase two years from now. Which is why we’re merging Monte dei Paschi with Mediobanca. This foolish move will make it impossible for us to regain our leading position in the market.
The road to consolidation is not easy. In response, Mediobanca has gone public to denounce Monte dei Paschi’s bid, calling the attempt “destructive” and a potential threat to both institutions’ stability. To put it mildly, the market didn’t respond well. Monte dei Paschi’s share price dropped by an estimated 8.5% upon announcement, and Mediobanca’s share price plummeted by around 14%. These drops indicate investor doubt about the likelihood of a successful merger getting through.
Analysts are still split on the merits of the deal. Others have claimed that there are few synergies to be found between the two banks with such different operational emphases. They caution that a Monte dei Paschi + Mediobanca combination may not provide the expected synergies. That’s in large part because of their different business models and go-to-market strategies. This uncertainty injects an additional dose of complexity into a process that is already a tough and tricky negotiation process.
Regardless of these obstacles, Lovaglio is confident that his offer is the “best price” for Mediobanca. For him it is a first step in the ongoing process of consolidation in the troublesome Italian banking sector. Only last week, the Italian government completed selling off its majority stake in Monte dei Paschi. Now that their ownership stake has dropped below 12%, the clock is ticking for the bank to accelerate its growth through strategic acquisitions.
Many of the larger banks in Italy today are in the midst of pursuing their own mergers and partnerships—though not always amicably. They want to improve their competitive position and operational productivity. Lovaglio’s view is that by forcing the consolidation of banks it will make the sector more resilient. This will position them to better meet the needs of their customers in an age of increasing change within the financial services ecosystem.
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