UniCredit/MPS: Orcel switches from deal maker to deal breaker
Chief executive deserves credit for holding out for a big dowry, but he may have made enemies along the way
If something seems too good to be true, it usually is. A capital-enhancing takeover of parts of Monte dei Paschi di Siena would have been a coup for UniCredit’s Andrea Orcel. He may have overplayed his hand by demanding a reported €6.5bn from the state to patch up the holes in the smaller Italian bank. This price was too rich for politicians who walked away from a deal over the weekend.
Orcel deserves credit for holding out for a big dowry. This was needed to compensate UniCredit minorities for the risks of integration and bad debts. He may have made some enemies along the way. The Italian establishment saw the former UBS banker as a man hired to do a deal, talk of which may recur.
The state will now have to renegotiate an extension of its EU deadline to exit MPS by the end of this year. Taxpayers will have to provide a fresh cash injection. Orcel must, meanwhile, present UniCredit shareholders with alternatives.
There are two main options. UniCredit could try buying Banco BPM if greater Italian exposure is still needed. If not, lower costs and higher capital returns should be priorities.
The fact that UniCredit shares barely moved on Monday shows that investors are still giving Orcel the benefit of the doubt. MPS was never going to be an easy target to absorb, even with surplus equity. Summer stress testing showed the bank was the continent’s weakest by many magnitudes. Some assets are on life support. Many will be reclassified when debt moratoria come to an end this year.
UniCredit is in better shape than it has been for years. A common equity tier one ratio of 15.5 per cent fully loaded leaves plenty of potential for buybacks. Trading at half their book value, the cheap shares reflect uncertainties around strategy even as the rate outlook improves.
Jefferies thinks the stock should yield 8 per cent if M&A remains off the table. But that was pretty much the plan of Orcel’s predecessor Jean Pierre Mustier. Shareholders may be left wondering why a new chief executive was needed in the first place.