Italian banking mergers nowhere in sight

Bloomberg

Consolidation in Italy’s banking industry will probably be postponed — again.
Potential tie-ups were high on the agenda of the bankers who gathered in the northern town of Brescia for the Assiom Forex conference, but no one seemed ready to take the first step. The current regulatory framework and Italy’s poor economic prospects will probably delay deals that analysts see as the solution for the sector’s weak performance.
“The execution risk of any banking deal is high and this is hampering M&A in the country’s industry,” said Andrea Munari, chief executive officer of BNP Paribas SA’s BNL Italian unit. “The trigger for a new wave of deals may be prolonged lower returns on capital, which could leave lenders with no alternative but scaling up.”
Italy’s mid-size banks are still struggling to cope with the aftermath of the global financial crisis, and while non-performing loans have gone down and valuations are rebounding from rock-bottom levels, solid profitability remains elusive. Regulators have been advocating consolidation, given the necessity to continue reducing costs and improving margins.
“Small and medium-sized banks are the most affected and struggle to strengthen their balance sheets owing to high costs and difficulties in gaining access to the capital market,” Bank of Italy Governor Ignazio Visco said.
Deal-making in the Italian banking sector all but came to a standstill in the last three years, compared with the frothy activity of the decade after 2000. The few deals that have taken place since the 2017 merger of Banco Popolare and Banca Popolare di Milano were designed purely to rescue ailing small lenders.
While the Italian bank index gained 24% last year, outperforming the 8% gain on the Euro Stoxx Banks Index, it is still trading at half of its value of 10 years ago.