World's oldest bank faces yet another reckoning
After a decade of scandals and multiple bailouts, Banca Monte dei Paschi di Siena SpA is back in the spotlight. This time, the Italian government is shopping around the 1.5 billioneuro ($1.7 billion) lender ahead of a European Union deadline for Rome to exit the bank next year.
Loaded with legal risks that dwarf its market value, any investor will be loathe to buy Monte Paschi with those liabilities not least in the midst of a pandemic.
The risk to Italian taxpayers is that Rome offloads its majority stake in the world's oldest bank at any cost. A sale to UniCredit SpA, as is being discussed, might solve Italy's immediate problem of meeting the EU deadline, but the bigger bank would demand strong financial guarantees. A Paschi merger would also make it harder for UniCredit to pursue more compelling deals.
It's no surprise that Italy has restarted talks with UniCredit to sound it out on Monte Paschi. Foreign banks haven't shown much interest and Intesa Sanpaolo SpA, UniCredit's main rival, is busy buying UBI, another lender that might have made a good merger partner for Paschi.
Equally predictable is that UniCredit is pushing back. The company wants the government to cover any capital shortfall from a potential merger and the legal costs, according to press reports. History isn't on Rome's side. In 2017, the state funded Intesa's purchase of two failing lenders.
Why would UniCredit accept anything less this time? Chief Executive Officer Jean Pierre Mustier has focused on returning capital to shareholders after cleaning up his own bank. Strategically, taking over another mid-tier Italian lender, Banco BPM SpA, makes more sense. A BPM deal would reinforce
UniCredit's position in Lombardy, the economic engine of Italy.
A merger in Germany, UniCredit's second-biggest market, would be even more compelling. While crossborder deals remain difficult in Europe, if Germany's Commerzbank AG were to come up for sale, UniCredit would be better off pursuing that purchase.
The reason Mustier is being pressured over Paschi is that other avenues for the ailing lender are much less appealing. A combination with Popolare di Bari, which Italy is in the process of rescuing, wouldn't return Monte Paschi to private hands.