UniCredit/bank M&A: dealpolitik
Politicians and central bankers seek to consolidate this fragmented sector
The role of factotum, a fixer to the powerful, is risky. No wonder Jean Pierre Mustier of UniCredit is resisting calls to do some fixing for the Italian government by taking over a weaker lender. Pressure may be growing. Pier Carlo Padoan, a former Italian finance minister, was recently anointed as UniCredit’s next chairman.
Little imagination is needed to envisage board meetings in which Mr Padoan extols smaller Monte dei Paschi di Siena as an M&A target. He led the 2017 bailout of the lender, which Italy’s government plans to return to full private ownership. Similar conversations are going on across Europe, as politicians and central bankers seek to consolidate this fragmented sector.
One can see why Mr Mustier might be unenthusiastic. UniCredit has lots of capital, as third-quarter results underlined. The Frenchman wants to return a big chunk to shareholders. He had not planned on using the money to blot out the bad lending decisions of others. Even so, a deal may be do-able involving Monte dei Paschi or Banco BPM, Italy’s third-largest lender.
UniCredit ended the third quarter with core equity tier one capital at 14.4 per cent of risk weighted assets. That was a hefty 538 basis points over a key regulatory minimum. The bank is well provisioned against loan losses.
Even allowing for tougher regulation, UniCredit should have more than €4bn which it could theoretically return to shareholders in the next couple of years, estimates Andrea Filtri of Mediobanca. That is on top of anticipated dividends of €2.8bn. But there’s the rub: the European Central Bank has banned payouts. That is one reason UniCredit has a market worth of only €16bn.
A change in ECB policy — and better returns from UniCredit’s diverse core businesses — would change that. An injection of cheap equity would help too. If Italy wants to shed state-controlled banking assets, Mr Mustier should demand low prices. “My lord may go dancing, but I’ll call the tune,” sang Figaro, the most famous of factotums.