Breakingviews – Cox: Mediobanca could be UniCredit’s White Knight
ZURICH (Reuters Breakingviews) – Enrico Cuccia founded Mediobanca after World War II as a bulwark of Italian capitalism against the confiscatory hands of an increasingly intrusive government. Rome seems again in the mood for intervention. The ousting of the board of directors of the French boss of UniCredit frightened the investors of the second lender in the country. If only Cuccia, who died in 2000, could be reincarnated.
Jean Pierre Mustier didn’t make many friends in Italy during his four-plus years at the helm of the bank from his glittering skyscraper in Milan. Shareholders are poorer. Its workers are not particularly happy. His nemesis in the city, Intesa Sanpaolo boss Carlo Messina, left him in the dust. Perhaps most dangerously, he has annoyed the powers that be in Rome, the Bank of Italy and the Treasury at Palazzo Chigi, where Prime Minister Giuseppe Conte resides.
But Mustier’s tenure has died on a hill that should confuse investors in Italian assets. The pressure on UniCredit to help solve one of the government’s nagging financial woes, an impending second bailout from Banca Monte dei Paschi di Siena, was the alleged straw. There were a handful of reasons the board could have called for Mustier’s departure. For shareholders, the disagreement over force-feeding Monte Paschi was the worst of all.
Now that Mustier is gone, investors have concluded that UniCredit will inevitably make the Rome offer and have decimated its share price. Unless a white knight offers an alternative. Maybe the one who wears the freebies UniCredit needs, devoid of what banking consultants call “the factory” to produce fee-generating asset management products as well as digital, investment banking and business. sturdy board.
Enter the ghost of Cuccia. Mediobanca is arguably the largest financial institution in Italy today. It generates returns that most of the time exceed its weighted average cost of capital. Since Mustier took over UniCredit in 2016, Mediobanca’s total shareholder return is 72%, comfortably beating Intesa’s 38% and a negative 11% at UniCredit.
Mediobanca also owns some of what UniCredit could use. Its Compass consumer loan arm, which accounts for almost half of the group’s operating profit, generated a return of almost 30% on allocated capital in the last quarter. Its wealth management arm is smaller but grew 11% in the quarter from a year ago, brought in 20% and is well suited to a period of ultra-low interest rates. Its digital bank for the rich, called CheBanca !, was founded during the last financial crisis and today has some 800 private advisers and deposits that provide a source of cheap funding.
UniCredit’s wealth management business should also fit well into Mediobanca’s investment banking arm, whose net profit jumped to € 85 million in the last quarter, up 48% from the previous year . Finally, Mediobanca has a potential candidate to replace Mustier: Managing Director Alberto Nagel, a 55-year-old Cuccia sidekick who has spent his entire career at the bank tucked behind Milan’s La Scala opera house.
UniCredit also has some charms for Mediobanca. Nagel tried to expand the business beyond Italy, picking up a consultancy boutique in Paris last year. UniCredit’s position as a corporate lender in Germany, Austria, and Central and Eastern Europe potentially offers greater hunting ground for Mediobanca financiers.
There’s just one not-so-piccolo issue: Mediobanca’s market cap of € 6.6 billion. Even after falling after Mustier’s exit, UniCredit’s equity is worth almost three times as much. A reverse merger, where the smaller of the two bids to buy its larger cousin for stocks, would be super daring. This is the sort of thing Cuccia used to give a whirlwind, like the Montedison and Gemina merger project in 1995, which ultimately collapsed in the face of new pressure from Anglo-Saxon investors and local magistrates. angry.
To succeed in a takeover, Nagel would have to convince UniCredit investors that they would be better off accepting shares from the merged group than if they were left to the devices of its board of directors under the leadership of its new chairman, Pier Carlo Padoan. The latter was the Italian Minister of Finance in 2017, when Rome decided to plug the holes in Monte Paschi by injecting more than 5 billion euros into the oldest bank in Europe.
Mediobanca’s own shareholders could be a bigger obstacle. Leonardo Del Vecchio, the eyewear mogul who owns a tenth of the bank and has permission from regulators to double his stake, is not a big fan of Nagel. At 85, the founder of Luxottica is old enough to remember when Cuccia wandered the narrow streets of Milan, bodyguard nearby, to the office where he protected the private wealth of family dynasties like the Agnelli and the Pirelli.
Mediobanca would likely need shareholder approval to issue a flood of new shares to UniCredit shareholders. With its shares trading at around 72% of its tangible book value, roughly double the valuation of UniCredit, it might even offer a premium. But investors would need to see a plan to soften the combined group’s returns. Nagel certainly couldn’t come up with a fair deal to land the top job at UniCredit, which could be his on demand anyway.
For UniCredit, however, Mediobanca could be something of a white knight, freeing the board from a forced marriage brokered by Rome with Monte Paschi and his accompanying black hole of legal liabilities and non-performing loans.
This is all a bit of M&A fantasy, of course. Exactly the sort of thing Cuccia in her prime would have considered keeping the wolf of Rome in her cage.
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