MPS/UniCredit: between a rock and a hard bargainer
Italy’s options appear to have narrowed
Guido Bastianini is in a tight spot. The chief executive of Banca Monte dei Paschi di Siena should be thinking about how to help integrate parts of the bank into UniCredit. Instead, he spent Monday explaining to politicians what will happen after the deal collapsed last month.
Bastianini must present a plan that will satisfy regulators and unlock a cash injection supported by the Italian state next year. A standalone MPS remains a far-fetched proposition. But a benign economy will help support the creation of a more palatable acquisition target.
Time is also on Andrea Orcel’s side. The chief executive of UniCredit, who resisted a deal that could have been costly for shareholders, will present a new strategy next month. His likely course of action will be to return excess capital via buybacks. The window of opportunity for an alternative deal — Banco BPM is tipped as a target — is rapidly closing. The government proposes eliminating generous deferred tax asset incentives by the end of the year.
It is difficult to imagine an acquirer for MPS other than UniCredit. That puts the onus on executives and politicians to rejig the bank to Orcel’s satisfaction.
Third-quarter results last week showed better than expected profits, capital and costs at MPS. But costs remain bloated. The bank is in the process of shedding 2,600 jobs through an early retirement scheme costing almost €500m. The cost-to-income ratio is expected to remain at more than 70 per cent next year. Bastianini will have to find further savings. Returns on equity are expected to reach just 2 per cent by 2023, according to analysts’ consensus.
Asset quality remains questionable. That was reflected in the big dowry UniCredit demanded to proceed with a takeover. The ratio of non-performing loans fell to 4.4 per cent, estimated Citi. MPS insists its capital limitations have constrained its lending to higher-quality credits.
Italy’s options appear to have narrowed. For Orcel to take MPS off its hands it must either provide generous equity or concede that the bank’s assets are even weaker than it ever admitted.