Banks, because for Orcel and Castagna it’s not time for m&a- Corriere.it

Bank risk can go into standby. The possible drop in revenues in the coming months, after the race also driven by interest margins, and the increase in the cost of credit, seems to induce bankers to heed the invitation to prudence launched in recent days by the governor of the Bank of Italy Ignazio Visco while the theme of the privatization of Monte dei Paschi di Siena and the hypothetical creation of a new center also appears more distant. The summary of why Italian banks are pulling the brakes on the m&a – but the situation applies to all banks in Europe – was given by the CEO of Banco Bpm, Giuseppe Castagna. With negative rates – he said at the Fabi conference – the growth of revenues was complicated and the only possibility of increasing profits was to make mergers and therefore synergies. While we have a bit of wind in our sails today with rate hikes, we want to take it all and also be focused on profitability. This implies following the guidelines of the industrial plans and not getting distracted. He recalled that in 2017 Bpm carried out a demanding merger with Banco and now a merger risks losing two or three years of growth to manage the consolidation. Only a few days ago, the banker had reiterated for the umpteenth time that he had no intention of pursuing a merger project with Mps: it is not part of our plans. We have a stand alone strategy.

Unicredit, the market will have to wait

Last week it was the CEO of Unicredit Andrea Orcel who spoke on the subject. Even if the thrust of interest rates on margins subsides in the coming quarters, the group will be able to offset the revenues with higher commissions – said the banker -. We are a solid bank, the cost of risk has fallen to 8 basis points from 40-50 a year ago. But as far as M&A is concerned, the market will have to wait. Mergers and acquisitions are complicated by three factors: macro uncertainties, heterogeneous regulation in Europe and possible impacts on capital. With the high rates that will still remain in circulation, the risk of having to revalue assets at current values ​​and therefore having an impact on capital, something that the ECB would certainly not welcome.

Shareholders less activists

Even the shareholders in this phase are not pushing for the m&a because they see an uncertain and riskier market around them. Or at least they signal that a merger or acquisition at this stage must have considerable and immediate benefits. In other words, synergies and cost savings that can be activated immediately. It is better to wait at least for the end of the year when rates have stabilized and perhaps have taken a downward trend. Meanwhile, they benefit from their holdings in the banks which will turn into rich coupons. According to the Uilca study, the top nine Italian banks in the first three months of the year reported profits up by 182%.

Cimbri: The path of Bper not linked to Mps

On m&a Orcel returned to the Fabi congress yesterday, adding that mergers are an accelerator of our strategy. We are expanding our network. It depends on the numbers that are not there at the moment. The president of UnipolSai Carlo Cimbri is also clear, according to which I find this constant worrying about the fate of poor Monte disrespectful for Mps. Cimbri paid homage to the CEO of Monte Lovaglio who had stated that the bank should not be sold off. And on the hypothesis of a wedding with Bper, Cimbri reiterated as a shareholder that Bper’s path is not linked to MPS but to its own strategy, like the CEO Montani said yesterday at the Fabi congress.

Stock market values ​​discourage appetites

Beyond the public statements, even analysts are currently skeptical about possible mergers. Doing m&a makes sense where I extract value, in cost synergies rather than revenues, or if I’m forced by crisis situations, as happened with Ubs and Credit Suisse, says Gabor David Friedenthal, partner of Kearney. When interest was zero, if not negative, generating profitability was difficult, so the only sources of value were the rationalization of costs rather than putting assets together, so getting married made sense. happened when Intesa Sanpaolo, buying Ubi Banca, liquidated the infrastructure precisely optimizing costs. Now this no longer applies: with the lending rates charged to customers (the passive ones have not been touched) and the wide margins for generating returns, we prefer to create revenue synergies internally; therefore, more profitable forms of employment are being sought: fewer mortgages and more consumer credit. Then there is another aspect: the banks have embarked on buybacks rather than using money to do mergers and the two things hold together. At the end of 2022, the Italian credit sector was underweight compared to the European average on price to book value (price to book value ratio), so the price to book value of assets was lower than in the rest of Europe.
The Price to Book Value of Italian banks is 0.5 against the 0.8 of the European average. The banker who has hay on his farm thanks to interest rates, instead of allocating it to other projects, invests those resources in the bank so he has a means of recovering value and aiming for that famous 0.8-. The banks are doing well, they don’t have cost pressure to do mergers, there is appreciation of the shares to do the buyback and therefore there are no reasons to do otherwise. Instead, entering the topic that holds the most attention in the corridors of credit institutions, Friedenthal observes: The Unicredit-Banco Bpm focus is a long-standing courtship, the real point should be to integrate coverage in the rich regions of the North and Northeast, where Orcel’s institute has less coverage than Intesa. Banco Bpm has grown a lot, now capitalizes 5.89 billion, twice as big as Bper, which is the same size and produces the same results. This is because Piazza Meda is more contestable. But – explains the analyst – as regards the evaluation that the market makes of Banco Bpm with regard to a possible acquisition operation from the outside, we can estimate the premium that the market prices for a possible contestability at around 20-30%. of the bank. At current market values, this is about 1-1.5 billion euro. Enough to discourage many appetites.