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Italian banks usher in new age
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March 22, 1999: 10:13 a.m. ET
'Eleventh hour' bids spell start of new era; more changes lie ahead
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LONDON (CNNfn) - Italian bank stocks shot up in Milan Monday after two of Italy's largest banks unleashed back-to-back bids for smaller rivals in a move that promises to hasten the advent of modern banking in one of Europe's last major holdouts against consolidation.
On Sunday, Unicredito, Italy's third-largest bank group in terms of market capitalization, launched a $16.4 billion share exchange offer for Banca Commerciale Italiana, or BCI.
Within a few hours, San Paolo-IMI, Italy's largest banking group in terms of assets, issued its own $9.7 billion bid for Banca di Roma.
Unicredito's tie-up with BCI would create Europe's fifth-largest bank. But San Paolo-IMI's offer for Banca di Roma threatens to quash Uncredito's hopes of catapulting to the top of Italy's banking pyramid.
The deals caused such upheaval on the Milan bourse that trading across the whole exchange was suspended temporarily.
When they were eventually allowed to trade, shares of target banks BCI and Banca di Roma soared nearly 10.5 percent and 13 percent, respectively. By mid-afternoon, BCI was up 6 percent at 7.63 euros, while Banca di Roma had pared some earlier gains but was still trading 8 percent higher.
The mergers, if successful, would radically reconfigure Italy's clubby banking pantheon. Most significantly, they would spawn a pair of $300 billion banking powerhouses more than able to hold their own on a European financial landscape increasingly dominated by the likes of Deutsche Bank, Banque Nationale de Paris, and ABN Amro.
The end of a banking era
But the bids also threaten to lower the boom on Mediobanca, a 55-year-old investment bank that has enjoyed virtual king-making status in Italian business and finance since the end of World War II.
Known for its secretive behavior and a plump portfolio that includes holdings in some of Italy's leading companies, including Fiat, Pirelli, and insurer Generali, Mediobanca has come to exemplify the clubbiness that has pervaded Italian business in the post-war period, analysts say.
Mediobanca rose 4 percent to 13.10 euros Monday in Milan, while Unicredito slipped 5 percent to 5.02 euros and San Paolo-IMI eased 4.3 percent to 15.1 euros.
BCI, Unicredito and Banca di Roma each hold stakes of about 8 percent in Mediobanca. The remainder of the merchant bank's shares are held by a diverse array of large Italian companies and by the public.
A united Unicredito-BCI would potentially be a majority shareholder in Mediobanca, a position that could easily chip away at Mediobanca's long-standing role at the heart of Italian business financing.
As Keith Baird, a banking analyst with Enskilda securities in London, put it: Mediobanca "has always been a kind of clearing house for power and influence in Italian finance and business. It's a place where things happen, if you like."
Baird said the proposed mergers could spell an end to the dichotomy in Italian finance and business that has endured for more than half a century.
"I think it signifies a kind of growing and opening up of Italian business and finance and ultimately a shift toward its democratization," Baird said. He noted, however, that the Italian banks had waited until "the eleventh hour" to act, and only then when globalization had begun making such inroads across the continent that a shake-out was all but inevitable.
Deutsche Bank could get a boost
Earlier this month, ABN Amro bought an 8.75 percent stake in Banca di Roma. The purchase was seen as crucial in the breakdown of protracted merger talks between last week between Banca di Roma and BCI.
Meanwhile, German giant Deutsche Bank, could stand to strengthen its foothold in Italy through a link-up since it controls a nearly 5 percent stake in BCI.
Under the proposed merger terms, Unicredito will offer eight of its own shares for five BCI shares. The deal values BCI shares at a 17.6 percent premium. The merged company will have assets of 260 billion euros.
San Paolo-IMI will tender two of its shares for every 19 ordinary shares in Banca di Roma at a premium of about 18 percent.
In a separate development, Banca Di Roma's chairman, Cesare Geronzi notified San Paolo-IMI Monday that his bank would consider the bid "constructively," Reuters reported. The reports said ABN Amro had no objections to the friendly merger. An ABN spokesman told the news service that all agreements with San Paolo are still in force.
Analysts noted the Italian financial sector has been splintered for so long between regional and national banks that Monday's mergers are bound to provoke further consolidation in the industry. But they caution against expecting too much at once.
"It's not an earthquake, it's more of a plate shift," said Baird.
--from staff and wire reports
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