February 10, 2017

Mediobanca Can Plan Lengthy Stay in Shop Window

by Katherine Massie

Mediobanca should plan for a lengthy stay in the shop window. The Italian bank beat market expectations in results released on Thursday. Still, it needs to work out its Plan B future should an acquisition of insurer Generali, in which it has a 13 percent stake, occur.

Alberto Nagel’s bank is purring along quite happily, while many of its peers are struggling. The bank, noted for corporate finance and power-broking, is diversifying into wealth management. It hit a 10 percent return on tangible equity in the six months ending December.

Yet if Intesa Sanpaolo were to buy Generali, Mediobanca could find itself deprived of almost a third of its net income. It would also suffer an identity crisis: the two firms are seen as key players in Italian high finance, with Generali the muscle to Mediobanca’s smarts. A shift could put it in play.

A Generali acquisition by Intesa would create a peculiar ownership tangle between the big Italian banks. UniCredit owns 8.5 percent of Mediobanca. Mediobanca in turn could own a tenth of Intesa if the latter paid in shares. The obvious solution would therefore be for one of the larger Italian banks to acquire Mediobanca.

That may not happen. Intesa Sanpaolo would be bogged down with integrating Generali. UniCredit, which is probably more familiar with Mediobanca anyway as a part owner, could fold its own investment bank into Mediobanca. Yet UniCredit chief Jean-Pierre Mustier is raising capital and is under pressure to rip out costs and make UniCredit profitable. He is more likely to be a seller, not buyer.

Nagel has an alternative. Flush with cash, or Intesa shares, Mediobanca could go on the prowl itself by bulking up its wealth management division. Mediolanum, or Allianz’s Italian unit, or even Generali’s private bank could fit the bill. That would diversify Mediobanca’s business further into fee streams and away from capital-intensive banking.

Nagel would need to make a good case for shareholders to not want the money back. Yet so far his plan to diversify is working out. The group doubled profit in wealth management in the six months to the end of December and is branching out into other areas, for example hoovering up bad loans from Italy’s sicker banks. If Mediobanca bulks up successfully, it would be in a shape to sell itself further down the line.


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