So much of Italy was shocked to wake up to an announcement on Friday that the world’s oldest bank — which is still subject to a government bailout — wants to buy a bigger rival, Mediobanca SpA, in an all-share deal valued at €13.4 billion ($14 billion).
“Until a few months ago this would have been an unthinkable move,” said Stefano Girola, CIO of the Brescia, Italy-based family office FI-MEP. The bank that “no one wanted has put itself center stage.”
The development reflects the rapid turnaround of Monte Paschi’s fortunes in recent years under Chief Executive Officer Luigi Lovaglio, which has seen the stock more than double and enabled the government to reduce its stake. It is also an expression of Italy’s interest in creating a new national banking champion.
There has been a flurry of dealmaking in Italy’s banking sector in recent months. UniCredit SpA, one of the two largest banks, is vying to acquire Banco BPM Spa, currently the No. 3. Paschi’s plan to take over Mediobanca would create “a strong third player in the Italian banking sector” noted Scope Group bank analyst Alessandro Boratti.
That would serve as a counterweight to larger lenders, and as the Italian government is still Monte Paschi’s biggest shareholder, it would help Prime Minister Giorgia Meloni keep much of the country’s financial services sector under domestic control.
It would also strengthen Rome’s influence over Generali, an insurer and major holder of Italy’s sovereign bonds, which counts Mediobanca as its largest shareholders. Greater control there would give the government more sway over “the entire banking and insurance value chain,” said Carlo Alberto Carnevale Maffe, who teaches business strategy at Milan’s Bocconi University.
Earlier this week, Generali signed a preliminary agreement to merge its asset management operations with the French banking group BPCE. Officials in Rome have been looking at ways to maintain Italian influence in the deal, while Caltagirone, who previously sought to oust Generali CEO Philippe Donnet, opposes the transaction, Bloomberg News reported.
The Mediobanca takeover is far from a done deal — Paschi says its offer was at a 5% premium to Mediobanca’s stock price before the deal was announced, a cushion that disappeared as the stock dropped 6.9% to €6.49 in Milan on Friday. Over that same period, Mediobanca rose 7.7% to €16.47.
Investor skepticism could also be a hurdle. KBW analyst Hugo Cruz said in a reaction note that the deal looks at first sight like it “has limited chances of success.”
Meloni can, however, count on the support of two powerful billionaire clans: the Del Vecchios, who control Ray-Ban maker EssilorLuxottica SA, and construction tycoon Francesco Gaetano Caltagirone. The families bought substantial stakes in Monte Paschi from the government in November and have since expanded their holdings, to 9.8% and 5%.
Neither Italy nor the billionaires own majorities in either lender, meaning they’ll face the challenge of persuading other shareholders to sign on to their plan. But should they manage to do so, it would make the Del Vecchios and Caltagirones influential investors in what would be one of Italy’s largest banks.
The blessing of the government and of two billionaire dynasties has effectively transformed Monte Paschi into “a buyer that can affect the whole Italian financial system,” according to Girola.
Mediobanca sees the move as hostile and will likely end up rejecting it, according to a person familiar with the matter.
The proposed takeover represents a stunning turnaround for the Sienese lender. Founded in 1472 to fund agricultural and commercial activity, it went on to expand throughout the peninsula, becoming one of Italy’s largest banks in the process.
The story of Monte Paschi’s downfall began in 2007 when it acquired Banca Antonveneta SpA from Spain’s Banco Santander SA for €9 billion — a third more than what Santander had paid to buy the lender just weeks earlier. As the global financial crisis rocked Europe’s economy, the deal saddled Paschi with losses that would eventually force it into years of restructuring and litigation.
The bank was first bailed out by the Italian government in 2009 and nationalized eight years later.
Since Lovaglio took over as CEO in 2022, Monte Paschi has seen a massive rise in profitability. Between his cost cutting and higher interest rates, the bank was able to resume dividend payments last year after a 13-year pause. That gave Italy an opportunity to start privatizing the lender.
Still, few would have anticipated that Monte Paschi would turn from potential takeover target to buyer any time soon.
In its statement on Friday, Paschi said that the acquisition would enable it to add wealth management operations and cut €300 million in annual costs. The enlarged bank would also be able to “accelerate the usage of €2.9 billion” in deferred tax assets to reap capital benefits, according to the announcement.
Some were as surprised by Monte Paschi’s proposed target as they were by the move itself. This is an “unexpected combination,” said Morgan Stanley analysts Pamela Zuluaga and Alvaro Serrano, noting that while Mediobanca specializes in asset and wealth management, consumer finance and investment banking services, Monte Paschi relies traditional retail and commercial banking services.
It’s essentially a political move, said Carnevale, the business professor, which could cause markets and institutional investors to react.
Others said different motives may be at work.
“I believe Paschi made a bid for Mediobanca as a defensive move to reduce its own speculative appeal,” said Margherita Strazzari, an asset manager at Sempione SIM.