Intesa chief faces challenges in selling merits of Generali bid
Regulators and investors need convincing of deal that would reshape Italian finance
The vast arched stone windows of the fortress-like headquarters of Intesa Sanpaolo were lit until well past midnight on Tuesday. Italy’s largest bank by assets had just confirmed it was weighing a bid for Italy’s largest insurer Generali, sending shockwaves through Italy’s tight-knit financial community.
The mooted deal if successful would reshape Italian finance, creating a financial colossus in Italy with a combined market value of €60bn, dwarfing Intesa’s nearest rival UniCredit.
But in the cold light of day on Wednesday, people close to the discussions admitted any plan is embryonic. The European Central Bank, which would need to give approval for any offer, has not even been informed as “there is no firm project yet,” said one person close to the deal.
The sensitivity is understandable. Carlo Messina, Intesa’s well-regarded chief executive, has a task ahead of him to convince the owners of the bank’s shares — 60 per cent of which are in the hands of foreign investors — of the merits of a deal merging banking with insurance.
With a market capitalisation above €24bn, a takeover of Generali would be the biggest acquisition by a bank since the financial crisis of 2008. Regulators have gone sour on the idea of mega deals in banking, reflecting the political backlash against lenders becoming “too big to fail”.
In addition, regulators have been pushing most Italian banks to reduce their high levels of non-performing loans and may be reluctant to allow Intesa to embark on a potentially risky expansion into insurance at a time when there are worries about both the health of the eurozone banking system and the region’s political stability.
Moreover, Mr Messina does not want to put at risk either its capital nor its rich dividend policy, two pillars on which the bank’s investment story has been based and factors that may sink any deal before it begins, said a person close to him.
“It is not without risk or complexity,” says one person briefed on Intesa’s plans. “People can see the potential benefits, but also the risks.”
Nonetheless, Intesa, which had started to look at the potential of a bid in the run-up to Christmas, sees Generali as the answer to the long-running question of how to grow its fee-earning asset management business, say people close to the bank. The insurer has a 15 per cent share of the Italian life insurance market, and its strategy has focused on growing its fee-earning business rather than more traditional, capital-intensive insurance products.
Bankers say there is scope for Intesa to improve distribution of Generali’s products by selling them through its own branches.
The two also have history in Italian life insurance. They were partners in a joint venture called Intesa Vita until 2009, when the bank bought Generali’s share for about €700m.
Generali, the largest shareholder of which is Italy’s Mediobanca, has been seen as vulnerable to break up since the exit of its well regarded CEO Mario Greco last year and the arrival of new CEO Frenchman Philippe Donnet.
And Mr Messina is not alone in his interest, say people with direct knowledge of the matter. Allianz chief executive Oliver Bäte has expressed interest in Generali’s French and China operations, said two people informed of the matter. Allianz declined to comment.
Italy only accounts for about two-fifths of Generali’s operating profits, and bankers say Intesa is unlikely to want the overseas operations. The two largest are France, which generates €650m in annual profits, and Germany which produces €800m. Analysts at UBS value Generali’s French business at about €4bn. France’s Axa has been linked with the German business, valued at about €5bn.
Both Axa and Allianz want to make acquisitions, but see property and casualty insurance businesses as a higher priority than life insurance. The Generali units would contain large doses of both. And Axa in particular has said several times that it is not interested in deals with large rivals.
“Tomorrow I will have new competitors such as Google, Microsoft and Facebook coming into my garden. I’d rather focus on the competition of tomorrow than combine with the competition of today,” Thomas Buberl, Axa chief executive, said recently.
Allianz, meanwhile, has an M&A budget of about €1bn per year, but has not fully spent that amount for the past few years. Analysts have been pencilling in a share buyback of up to €2.5bn if it does not find any suitable targets.
People close to the discussions said they expected if Intesa makes a move on Generali other operators may also enter the fray. Analysts suggested even UniCredit, if its CEO Jean-Pierre Mustier succeeds with a €13bn capital raise next month. A person close to UniCredit said Mr Mustier would prefer an independent Generali.
James Shuck, analyst at UBS says: “This is a once-in-a-generation opportunity. Assets like these just don’t come up.”