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.”