Intesa rises after rejecting bancassurance union

Bloomberg

Intesa Sanpaolo SpA climbed in Milan trading after abandoning the idea of a joint business model with an insurance company as Chief Executive Officer Carlo Messina doesn’t see sufficient value in merging with Assicurazioni Generali SpA, Italy’s biggest insurer.
The country’s second-largest bank said that after studying a possible combination under the bancassurance model, it now plans to improve the creation and distribution of value for its shareholders, according to a statement from the Milan-based lender. Intesa jumped by as much as 6.4 percent and Generali dropped by as much as 6.3 percent.
“It was hard to find an industrial sense to the deal, as the bancassurance model hit the rocks several years ago, showing that diversified and large companies are not manageable,” said Jacopo Ceccatelli, head of Marzotto SIM SpA, a Milan-based broker-dealer. “In the current stricter regulatory environment it would be a self-defeating choice.”
Bancassurance, which ties lenders to insurers and focuses on cross-selling their products, was largely dropped as a model after deals produced poor results. A prominent failure was the 23 billion-euro ($24 billion) takeover of Dresdner Bank by Allianz SE in 2001. Europe’s biggest insurer sold the lender at a loss to Commerzbank AG during the financial crisis after losses at Dresdner’s investment bank threatened the insurer’s financial stability.

Foreign Network
A combination would have seen Messina adding to the bank’s non-life insurance business and expanding abroad through Generali’s foreign network. With 4,100 branches stretching from the Alps to Sicily, Intesa relies almost entirely on Italy for revenue, while Generali operates in more than 60 countries.
A tie up between the companies “would have been a difficult but interesting opportunity to put capital to work and strengthen Intesa’s position in wealth management,” Kepler Cheuvreux analysts wrote in a note, reiterating a buy rating on the shares. “However, we were well aware of the complexity of a business combination of these activities, distribution and regional exposures.”
Messina had sought support from institutional investors in both companies to build consensus before making a bid, people familiar with the matter have said. The CEO sounded out Intesa investors including BlackRock Inc. in London as part of a roadshow tied to the bank’s earnings announcement and has also been speaking to Generali’s shareholders for the past month, according to the people.
“With investors and analysts skeptical about the industrial sense of a combination with Generali, the most likely outcome happened,” said Fabrizio Spagna, managing director at Axia Financial Research in Padua, Italy.
Intesa was up 5.8 percent at 2.20 euros as of 9:09 a.m. Generali was down 4.9 percent at 13.41 euros.
Intesa, which has 370 billion euros ($391 billion) of assets under management, is targeting more lucrative products to help counter low interest rates. Generali, based in the northern port city of Trieste, oversees about 500 billion euros of investment, largely in fixed income, with the remainder in shares, real estate and cash. About 80 percent of the portfolio is dedicated to insurance asset management, with the rest comprising investments on behalf of non-insurance customers.
Dubbed by the Italian press as the “Lion of Trieste” because of its corporate logo, Generali was founded in 1831 and now has 76,000 employees. Like other European insurers, it’s struggling to boost profitability as investment returns fall and competition increases. Philippe Donnet, who became chief executive officer in March, is cutting costs and focusing on cash generation and the retail business to improve returns.