The second banking center in Italy, Banco BPM proposes a merger with MPS

The banking risk restarts from a move of Bpm Bank. The group led by Giuseppe Castagna he proposed to Banca Monte dei Paschi di Siena an agreed aggregation that would give life to a “new banking and financial group of reference in Italy”, destined to become the second largest national operator in terms of customer financing and deposits.

The operation would have a capitalization stock market potentially exceeding 50 billion euros, a “significant synergistic potential” at full capacity exceeding 1.1 billion euros gross per year and a “potential generation of net profit fully operational amounting to approximately 6 billion euros”. The board of directors of Banco Bpm unanimously resolved to send MPS a communication expressing its interest in starting a dialogue aimed at discussing and agreeing on a possible aggregation between the two institutions.

Waiting for MPS’ response

No comments came from Siena. MPS confirmed that it had received Banco BPM’s proposal and that it was “waiting for the meeting Board of Directors of the bank”. Before then “no comments”. The institute’s board had already convened for tomorrow and could therefore examine the offer made by the Piazza Meda bank.

Merger of equals hypothesis

For Banco Bpm the operation should be carried out according to the typical methods of a merger of equals“the most coherent solution to align all shareholders on a common industrial plan”, preserving the DNA of the two institutions and enhancing their respective cultures. The new group would have a governance “based on criteria of balance and representativeness, as well as the protection of the respective brands, historical headquarters and territorial rooting“. The bank bases the project on what it defines as a “clear strategic rationale“.

The new banking group

The resulting group would become the “second largest domestic banking operator”, with complete coverage of the national territory and a particularly deep-rooted presence in the regions with greatest potential. In particular, it would be the first operator in terms of number of branches in Lombardy, Tuscany e Venetowhile strengthening its competitive positioning in various areas of Central and Southern Italy.

Synergies and complementarities

Among the qualifying elements of the operation is the complementarity of the product factories and the high upside resulting from their optimization. Banco Bpm recalls both activities historically outsourced by MPS and recently internalized and the complementary product factories contributed by the MPS-Mediobanca hub.

Integration with Mediobanca

The aggregation, we read in the press release, would also be part of the integration process of Mediobanca currently underway “in an efficient and complementary manner”, allowing for a coordinated development of the activities involved.

The role of quota in Generali

Another piece of the project concerns the stake held by MPS in General. Banco Bpm underlines the “further benefits” deriving from the share and states that its “decisive relevance” would allow it to expand the scope of strategic options available to the resulting group, in the interests of the shareholders and stakeholders of the entities involved.

Economic estimates

On an economic level, the group estimates a “significant synergistic potential once fully operational in excess of 1.1 billion euros” before taxes. Of these, over 650 million would come from cost synergies and over 450 million from revenue synergies.

In turn, the revenue synergies approximately 250 million would be generated by increased revenues on the networks and approximately 200 million by the optimization of product factories. The combination would also make it possible to achieve a operational scale adequate to support technological investments and competitive positioning, allowing the group to compete with the main international operators and with new ones digital players.

On the front of the capital marketBanco Bpm estimates a stock market capitalization “potentially higher than 50 billion euros”, with consequent strengthening of its market positioning and broadening of the base of investors.

Capital position and cet1

For shareholders the bank proposes one capital position at the top of the sector, with a Cet1 ratio fully loaded pro forma equal to approximately 15%, without considering the further potential benefits deriving from the possible extension of the Danish Compromise to participation in General.

Creation of value and synergies

The “value creation” is estimated at at least 5.5 billion euros, valorising the synergies net of integration costs equal to approximately 1.1 billion euros before taxes.

Net profit and growth

Banco Bpm also estimates a “potential generation of net profit when fully operational, amounting to approximately 6 billion euros”, accompanied by a growth in earnings per share in double digits, in support of a distribution capacity greater than that envisaged in the stand-alone plans of the two banks and of a strong organic capital generation.

Starting comparison with mps

The bank now hopes to be able to start a discussion “quickly”. Mps and its management to explore the opportunity and, in the presence of mutual interest, define the main elements of a possible aggregation through a “structured and collaborative path“.

Advantages of the operation

According to Banco Bpm, the agreed nature of the operation and the approach to be merger of equals would favor a more effective implementation of integration, a minimization of execution risk and a full valorization of industrial complementarities.