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Intesa Sanpaolo chief calls for cross-border European banking deals

Mergers needed to compete with the US and China, says Carlo Messina

European banks need to do cross-border mergers in the next five years if they are to compete against rivals in the US and China, according to the chief executive of Intesa Sanpaolo, the eurozone’s second-largest bank by market capitalisation.

“Undoubtedly cross-border M&A is what the eurozone will need across the next five years if you look at the size of US and Chinese competitors,” Carlo Messina said in an interview. “But investors will get on board only if you can offer synergies on a cost level, so finding the right combinations [is not simple].”

Earlier this year Intesa conducted a hostile takeover of smaller domestic rival UBI Banca. Mr Messina described the deal as a “magic shield [which] places us in the position to be the best bank in the eurozone according to all capital indicators, in spite of the pandemic.”

He added: “We picked a target that gave us the opportunity to realise important synergies with a low level of execution risk and our shareholders liked it.”

Following the acquisition, Milan-based Intesa is getting ready to clean up its balance sheet from non-performing loans and further reduce costs in 2021.

On Wednesday Intesa said in its third-quarter results that badwill — an accounting gain that occurs when the price paid for an acquisition is less than the fair net market value — was estimated at €3.3bn rather than the anticipated €2.8bn. This effectively doubled the lender’s net income for the year so far. 

Intesa performed ahead of expectations during the three months in spite of an additional €853m provisions for bad loans. Mr Messina said the bank is likely to accelerate cost reduction thanks to voluntary exits, which are set to surpass the 5,000 job cuts target. Additional branch closures are also possible beyond the planned sales to BPER, another Italian bank.

While analysts have flagged concerns around the impact of the new lockdown measures in Italy on the bank’s short-term performance, Mr Messina said he expects minimal disruption and pointed to the additional €23bn in deposits that Intesa has collected since the beginning of the pandemic. 

Italy’s most industrialised regions, including Lombardy, Piedmont and Veneto, were declared moderate to high risk by the national government on Thursday. However Mr Messina said that “the financial structure of Italian businesses is solid and the fact that the manufacturing and construction sectors are allowed to remain open during this new phase will help sustain the country’s economy.”

Natixis to cut ties with under-fire H2O

French investment bank looks to sell majority stake in asset manager

Natixis is seeking to sell its majority stake in under-fire H2O Asset Management, as the French investment bank looks to sever all ties with a controversial subsidiary that exposed weaknesses in its risk management. 

The decision casts doubt over the future of the asset management firm, which Natixis had backed since its inception a decade ago. 

Natixis has been repeatedly questioned about its H2O subsidiary ever since the Financial Times revealed in 2019 that it had put more than €1bn of investors’ money into illiquid bonds linked to Lars Windhorst, a controversial German financier.

The move by Natixis is part of a strategic reset by new chief executive, Nicolas Namias. He is seeking to cut costs, slash risk and restore confidence in its multi-boutique model, which takes majority stakes in smaller investment firms that continue to be run at arm’s length. 

“I am taking decisions that put Natixis back on a positive trend,” Mr Namias told the Financial Times. 

The bank said that H20 “will no longer be considered a strategic asset” and it is in discussions with the investment manager about unwinding the partnership. One option being explored is a progressive sale of Natixis’s 50.01 per cent stake in H20. Another is that H20 takes over the distribution of its own funds during a transition period until the end of next year. 

H2O’s illiquid investments linked to Mr Windhorst prompted French regulators in August to force a six-week suspension on a series of its funds, an unprecedented intervention that ended last month. Even after reopening, significant proportions of investors’ funds are still trapped in illiquid “side pockets” hiving off the disputed bonds.

Several of France’s biggest life insurance firms, once the backbone of H2O’s domestic investor base, have halted new investments with the investment firm in recent weeks, with a number of them valuing the side-pockets at zero.

Natixis does not publicly disclose H20’s financial contribution to its business. According to analysts, this has slumped from €120m last year to just €7m in the third quarter.

H20’s assets under management have dropped from about €30bn at the start of the year to €20bn at the end of September, according to its website.

Despite the decision to cut ties with H2O, Mr Namias said he remained committed to Natixis’s multi-boutique model, which he said had shown its “resilience” through the pandemic. “We have reinforced our management of risk and compliance . . . the model is stronger today than it was one year ago”.

H20 did not immediately respond to a request for comment.

The ability of Natixis to manage risk has come under broader scrutiny due to a series of losses stemming from risky structured products and as companies hit by Covid-19 cancelled dividends earlier this year. After its second consecutive quarterly loss, Natixis replaced its CEO in August.

As it announced a €39m profit in the third quarter, Natixis said on Thursday it had re-evaluated its equities derivatives business and had decided to pull out of the riskiest products, following a similar move by French rival Société Générale.

The bank will aim for a recurring €350m of cost savings by the end of 2024, including from the derivatives overhaul. It has also closed a merger with La Banque Postale Asset Management, which lifts Natixis’s assets under management to more than €1tn.

Natixis’s share price has fallen more than 40 per cent this year, along with other European banks hit by the pandemic and low interest rates.

Canada’s Intact Financial and Denmark’s Tryg have made a joint bid for the 300-year-old group

UK insurer RSA said it is in talks to sell itself to a consortium in a £7.1bn deal that would break-up the 300-year-old group. 

Canada’s Intact Financial and Denmark’s Tryg have proposed paying 685p per share for RSA, the UK insurer said in a statement on Thursday. That is a 48 per cent premium to where the stock was before trading opened on Thursday.

If the bid is successful, Intact will keep hold of RSA’s UK and Canadian businesses, while Tryg would take the operations in Sweden and Norway. The two groups would co-own RSA’s Danish business. 

RSA said that it had received the proposed offer on October 2 and has entered into discussions with the bidders.

“The board of RSA has indicated to the consortium that it would be minded to recommend the proposal, subject to satisfactory resolution of the other terms of the possible offer, including a period of due diligence,” the UK insurer said. 

RSA has been run by Stephen Hester since 2014, when he joined after the company discovered problems in its Irish business. He shored up the balance sheet with a £773m rights issue and sold some of its international businesses.

There was another hiccup in 2018 when the company had problems in its London-based commercial insurance operation. Since then it has exited several lines of business.

RSA has long been seen as a takeover target and been linked recently with Aviva, which also has a big presence in the UK and Canada. Some in the insurance industry have seen Scott Egan, head of RSA’s UK business, as a potential successor to Mr Hester. 

"It’s difficult to see another bidder emerging at this point. A rival consortium bid possibly involving Aviva and Sampo could have made some sense but neither company is in a position to do so right now,” said James Shuck, an analyst at Citigroup. “Any rival bidder would find it very difficult to match the offer price given the size of the synergies that would be available to the existing consortium,” he added. 

Shares in the London-listed company surged to close at 670p on Thursday after Bloomberg first reported on the interest from Intact and Tryg. Under UK takeover code guidelines, the bidders have until 5pm on December 3 to make a firm offer under UK takeover code guidelines. 

If it is swallowed up, RSA would become the latest UK insurer to be bought by an overseas rival. In August, Hastings accepted a £1.7bn bid from Finnish insurer Sampo and South Africa’s Rand Merchant. Germany’s Allianz bought general insurance businesses from LV and Legal & General. 

Concession to activist hedge fund shows asset manager is bowing to pressure to turn business around

Invesco has granted board seats to Trian Partners’ Nelson Peltz and Ed Garden in a key concession to the activist hedge fund that is pushing for changes at the struggling asset manager.

Mr Peltz, Trian’s chief executive, and Mr Garden, its chief investment officer, will join Invesco’s board with immediate effect, according to a filing submitted on Thursday.

Invesco also said that Tom Finke, chief executive of $354bn fund group Barings, would join its board as a director when he steps down from his current position at the end of this month. Barings is a subsidiary of MassMutual, the US insurance company that is Invesco’s largest shareholder.

The appointments, which involve Invesco expanding its board from nine directors to 12, show that the $1.2tn asset manager is yielding to pressure to turn around its troubled business.

Trian disclosed an almost 10 per cent stake in Invesco last month and signalled it would push the group to consider deals to help it withstand the relentless fee pressure facing the asset management sector.

Invesco has been hard hit as investors have abandoned active asset managers, which charge high fees for picking stocks, for passive funds that simply track an index. It ranked as the worst-selling fund manager globally in 2019 and its long-term funds have lost a net $33.1bn since the start of this year.

“We are pleased to have Trian as a significant shareholder,” said Richard Wagoner, chair of Invesco’s board. He pointed to Mr Peltz and Mr Garden’s “impressive” record as long-term investors and experience in asset management, which gives them “a deep understanding of the significant growth opportunities of this industry”.

Mr Wagoner said that the expanded board would work with Invesco's strong leadership team to drive sustainable growth and enhance long-term value for shareholders.

Credit Suisse analyst Craig Siegenthaler said that the changes to Invesco’s board increased the likelihood of the asset manager making a large-scale acquisition over the next six months, adding that Janus Henderson was viewed as one of the potential candidates.

At the same time as it bought into Invesco, Trian took a similar-sized stake in rival active manager Janus Henderson, which manages $336.7bn, and said it intended to discuss “strategic combinations” with both groups.

Trian added that only asset managers with “significant scale and product breadth, streamlined and efficient non-investment functions, and the ability to invest in technology, growth and innovation” were best placed to succeed.

The fund indicated in regulatory filings that it could encourage the company to pursue deals with other asset managers in which Trian currently holds a stake. Trian declined to comment.

The New York-based hedge fund has a dedicated long-term fund that is aimed at spurring consolidation in the asset management industry. It previously owned a stake in Legg Mason, which was acquired by Franklin Templeton in July.

Mr Wagoner added Mr Finke’s presence on Invesco’s board would serve to strengthen the asset manager’s relationship with MassMutual, which he described as “a committed, long-term partner to our business”. MassMutual took a stake in Invesco as part of the $5.7bn sale of OppenheimerFunds to the larger asset manager in 2018.

MassMutual could not be reached for comment.