How Mediobanca became a prey to Monte dei Paschi

When Italian financial powerhouse Mediobanka set up long-time client Monte dei Paschi di Sina for restructuring or bankruptcy capital in 2022, it had no idea that the former poster child of the country’s failed banking system would eventually become a takeover target.

On Friday, MPS surprised investors with a €13.3bn all-share bid for its biggest rival, a 5 per cent premium to Mediobanca’s closing price a day earlier.

The lender’s takeover of Italy’s banking system, which is still partly state-owned, represents another shock in a series of back-and-forth negotiations that could shape the country’s financial landscape.

“This is the final battle between Roman (politics) and Milanese finance,” said one government official.

In the year Since coming to power in late 2022, Georgia Meloni’s right-wing government has made it a priority to present itself as market-friendly, to assuage audience fears that it will take a heavy-handed nationalistic approach to business and financial policy.

However, a series of interventions in the financial sector – including last year’s sale of MPS to rival Banco BPM and controversial reforms to the country’s capital markets law – as well as public statements on “global speculation” have reignited such concerns. .

“It is simply unfathomable that a commercial lender (the largest single shareholder) would try to take over a competitor of a major investment bank, the government, at a huge premium and without a clear strategic objective,” said a senior Milan-based bank executive. .

Following the lender’s successful turnaround, Italy is cutting its stake in MPS to meet EU pledges to privatize the world’s oldest bank.

But the state remains the largest shareholder with a stake of more than 11 percent – and MPS looks set to play an increasingly important role in the government’s efforts to create a new financial powerhouse.

Last year, Meloni’s government hoped to merge the Tuscan lender, once a symbol of the financial power of Italy’s left-wing parties, with Banco BPM to create a large domestic banking hub.

Dubbed the “third pillar”, the aim was for the lender to compete with the larger Unicredit and Intesa Sanpaolo and maintain a strong Italian footprint.

UniCredit’s takeover bid for Banco BPM in November scuppered those plans and left the government scrambling for ways to deal with CEO Andrea Orcell’s latest move.

Insiders say the MPS’s move against Mediobanka now shows that the Meloni government has given up hope that UniCredit could be stopped and has accepted that it needs to find an alternative to BPM for its consolidation efforts.

On Friday, MPS CEO Luigi Lovaglio said the takeover offer “is an industrial project we have been thinking about since 2022”.

“We will create the third banking group in the country,” Lovalio said. He called the move “bold”, “innovative” – ​​and “friendly”. Insiders say Mediobanca boss Alberto Nagel doesn’t see it that way.

“The takeover bid is obviously a market transaction,” Meloni told reporters on Saturday. “The only thing I notice is that MPS, which was seen as a problem by both institutions and citizens, is a perfectly healthy bank that has embarked on a mission that makes us proud.”

Replacing BPM with Mediobanca and turning MPS into a buyer rather than a target gives Rome a new opportunity: to use relationships with two of Italy’s giants and expand its reach beyond General Insurance Group – a large investor in Italian public debt and one 13 percent owned by Mediobanca.

In an MPS stock auction in November, the government sold a large portion of its remaining holdings to Delfin, a company owned by the billionaire Del Vecchio family, construction tycoon Francesco Gaetano Caltagirone and BPM.

With their new stake in MPS, Caltagirone will own 7.8 percent of Mediobanca and 6.9 percent of Generalia. Delfin owns 9.9 percent of General and 19.8 percent of Mediobanca.

Both Caltagirone and Delphine have been strategically at odds with Nagel and General-in-Chief Philippe Donnet, but have made no effort to replace them.

The general’s decision to enter into an asset management partnership with France’s Natixis, first reported by the Financial Times in November and announced on Tuesday, further ties Rome to Caltagirone.

Meloni’s allies have raised fears that Italy’s savings will increasingly flow abroad, and that restructuring Italy’s massive public debt could face obstacles in the future.

Such concerns were echoed in the Italian establishment and in Caltagirone. General board representatives opposed the deal, according to people familiar with the discussions.

Insiders see the hand of Caltagirone, not MPS boss Lovalio, behind MPS’s move at Mediobanca. According to them, it is part of a wider attempt to take over General and reform the business and management of Mediobanca, which the late billionaire Leonardo del Vecchio had his eyes on years ago. Caltagirone’s son Alessandro is a newly appointed member of the MPS Board of Directors.

People close to Caltagirone and those close to MPS denied the Roman rich man’s direct or indirect involvement in the transaction.

The merger between Mediobanca and MPS will help resolve Caltagirone’s and Delphi’s long-standing grievances and give Rome a seat at the country’s most prestigious and influential financial tables.

There is no certainty that an agreement will be reached. MPS shares fell 7 percent on Friday, while Mediobanca shares rose nearly 8 percent.

Analysts’ responses are muted. According to Marco Nicolai at Jefferies, the cooperation between the two banks is limited and the risk is high. “Cultural differences between the two companies can lead to income inequality, especially on the investment banking and wealth management fronts,” he said.

“Our initial impression is that this offer has limited chances of success,” said KBW analyst Hugo Cruz.

But people close to MPS have argued that Mediobanca has been “stalled for too long”, and has been overly dependent on dividends from General, a long-standing critic of the Milan-based bank.

A CEO said: “The road ahead is long and winding, not only for MPS but for the entire Italian banking sector: many moving parts, many unknowns and too many actors involved.”