Monte Paschi’s ‘Unthinkable’ Move on Larger Rival Stuns Italy
Monte Paschi’s ‘Unthinkable’ Move on Larger Rival Stuns Italy · Bloomberg

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(Bloomberg) -- The last time Banca Monte dei Paschi di Siena SpA bought another lender, it ended in tears.

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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.