|Bid||1.5430 x 0|
|Ask||1.5680 x 0|
|Day's Range||1.5428 - 1.5734|
|52 Week Range||1.3062 - 2.6325|
|Beta (5Y Monthly)||1.57|
|PE Ratio (TTM)||6.07|
|Earnings Date||Nov. 04, 2020|
|Forward Dividend & Yield||N/A (N/A)|
|Ex-Dividend Date||May 18, 2020|
|1y Target Est||2.58|
(Bloomberg Opinion) -- Europe desperately needs its banks to function better. Low profitability, decrepit technology and a new wave of loan losses threaten to hobble even the continent’s strongest lenders. Share prices are close to historic lows. In this environment, it’s tempting for those in better shape to snap up their cheaper rivals. But banking bosses should think carefully before empire building.Europe’s political leaders are anxious to prop up their national finance champions, which once ranked among the global banking elite, and to weed out the weaklings. Bank loans finance more than 80% of corporate and household borrowings in the euro zone, compared to slightly more than half in the U.S. During a pandemic-induced recession, Europe cannot afford a lending malaise.With no end in sight to the monetary easing that has crushed profit margins, a fragmented market with too many bank branches should be perfect for consolidation. Bad loans arising from Covid-19’s economic carnage will eat into already miserly returns for years. In the meantime, competition from fintech and big tech companies will intensify.Unfortunately, while some mergers might shore up returns and improve bank resilience, scale hasn’t always helped European lenders. Analysis by Credit Suisse Group AG shows that return on equity — a measure of profitability — in 2019 was higher among smaller banks than larger ones.The other problem with mergers is that most banks still need to get their own houses in order before landing someone else with their problems. Expenses remain stubbornly high throughout the industry and legacy technology needs replacing. It might be easier to tackle this ahead of the politically charged process of combining two companies.Take the rumors of a possible combination between France’s BNP Paribas SA and smaller domestic rival Societe Generale SA. Analysts at Morgan Stanley say a merger would allow “material” cost cutting in the two banks’ domestic retail businesses and some savings in investment banking. The two firms could pay for the deal in part by selling assets such as SocGen’s Russian activities. A French domestic market share of about 20% shouldn’t unduly worry competition authorities.However, the better-run, steadier BNP would have to take on the mammoth task of integrating another bank’s dated technology, while adding little desirable diversification and SocGen’s inferior balance sheet. When measured against its capital, SocGen is sitting on a bigger pile of complex, risky trades than the more conservative BNP.To encourage these types of deal, regulators say lenders can make use of an accounting quirk known as “badwill,” or negative goodwill. This means the acquirer can book a profit gain from the difference between the target bank’s depressed market value and its book value. This inflates the merged bank’s capital and cuts the cost of a deal for shareholders, but it’s no panacea.With valuations at historical lows, boosting capital through this accounting trick leaves the enlarged bank exposed to future impairments. If the books of the target turn out to be worse than assumed at purchase, and the value of the badwill is subsequently reduced, it would cut the merged lender’s capital. That would be one concern if Deutsche Bank AG bought Commerzbank AG, for example, according to Credit Suisse analysts. Commerzbank’s badwill could represent almost half of Deutsche Bank’s core capital, depending on the premium offered in a merger.In fairness, some mergers make sense. The two biggest deals this year — Intesa Sanpaolo SpA’s takeover of UBI in Italy and Caixabank SA’s purchase of Bankia SA in Spain — rely in part on badwill and still have a strong financial rationale. There’s room for a few more smaller deals in Italy and Spain, while Germany’s fragmented market of state-backed and mutual lenders is ripe for an overhaul. Even a mooted combination between Swiss behemoths UBS Group AG and Credit Suisse would be worth considering given their complementary securities businesses and strong private banks.And if Europe ever completes the integration of its banking industries and harmonization of its legal systems, allowing funds and liquidity to flow freely, some large cross-border deals will become compelling. In the meantime, European bank executives may want to prioritize calls from cost-cutting consultants over M&A-pitching bankers.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Intesa Sanpaolo <ISP.MI> has agreed to buy a 69% stake in Switzerland's REYL & Cie, the two companies said on Monday, in a deal that will merge the Italian bank's Swiss private banking business with its Geneva-based rival. Intesa, which has a business model geared towards fees from asset management and insurance, is carrying out the acquisition through Fideuram, its private banking division. "The partnership ... confirms the choice of Switzerland as the headquarters of the international private banking activities of Fideuram ... and adds significant scale to its existing presence in the country," the companies' joint statement said.
(Bloomberg Opinion) -- 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 billion-euro ($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 cross-border 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.Adding to Rome’s urgency, Monte Paschi is close to selling 8 billion euros of bad loans to another state-owned entity later this year, a key milestone in its rehabilitation. The sale will erode Paschi’s capital, which the European Central Bank wants the lender to strengthen. A merger with a stronger bank would solve that problem.A greater risk is that Monte Paschi loses some of the 10 billion euros of legal claims against it, forcing it to set aside more funds and further eroding capital. The pandemic could also lead to a fresh avalanche of bad loans. Should it need to raise more capital, even with the backing of the state, the costs would be prohibitive and eat into already weak profitability. Analysts expect the bank to make just 76 million euros next year, which could be wiped out by higher interest costs.It’s arguable that Monte Paschi should have been wound down years ago — it was probably insolvent at the time of its last state rescue — but more visibility on the potential legal liabilities would at least strengthen Italy’s negotiating hand. While a return to private ownership could help salvage what’s left of the storied lender, Rome must do everything possible to keep a lid on the taxpayers costs.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.