By Alessandro Boratti, Analyst, Financial Institutions

CA has a long history of M&A in Italy, having grown through inorganic transactions since it entered the market in 1972. In 2021 alone, CA acquired Creval, the EUR 26bn regional lender based in Lombardy; signed an agreement with Stellantis to buy out its 50% stake in FCA Bank, their captive finance joint venture; and made a bid for Carige (losing out to BPER). Credit Agricole Italia now has around 4% loan market share.

The group has not so far indicated an intention to launch a tender for BPM, Italy’s third largest privately-owned bank. But judging by the market reaction to the news – BPM shares were almost 17% higher at one point on 8 April against the previous day’s close – equity investors seem to have drawn some conclusions. According to BPM, the purchase was not pre-emptively agreed.

Credit Agricole’s short statement announcing its purchase of the BPM stake, praised the quality of the BPM franchise and management team, underlying the strategic nature of the stake and the room for an expansion in strategic partnerships. CA and BPM already have a joint venture in consumer finance: Agos Ducato, a top five player in Italy.

Despite its weak underlying profitability, Banco BPM is a potential target. Formed through the merger of two co-operative groups, it has an attractive commercial banking franchise in northern Italy, with deep-rooted ties with local retail and SME customers. Since the 2017 merger, BPM has concentrated its efforts on de-risking, achieving close to a 20pp reduction in its gross NPL ratio.

Although the general consolidation trend in banking accelerated after the global financial crisis, the Italian banking sector remains fragmented. At the end of 2021, there were still more than 450 banks operating across the country, according to Bank of Italy data. But there have been numerous acquisitions in recent years. In 2020, Intesa acquired UBI, the fifth largest Italian bank at the time. The deal further strengthened Intesa’s market position while taking a potential consolidator off the market.

Former co-operative bank BPER Banca has been also very active, acquiring Unipol Bank in 2019 (the Unipol group has an 18.89% stake in BPER); buying 486 branches and 134 operational units from Intesa in 2020/21; and closing its acquisition of an 80% stake in troubled lender Banca Carige at a symbolic price of EUR 1 in February 2022.

Under new management, UniCredit has also been actively looking to bolster its market position in Italy, but its attempts have been inconclusive so far. In 2021, talks with the Italian treasury over the potential acquisition of Monte dei Paschi di Siena collapsed. In early 2022, the group declined interest in Banco BPM following a sharp increase in the latter’s share price amid M&A rumours.

Further consolidation of the Italian market is credit positive. From a business standpoint, combinations can bring significant benefits, including revenue synergies such as enhanced cross-selling, cost synergies, and bigger budgets for digital investments.

European banking supervisors have been very supportive of consolidation since the onset of the pandemic. After the temporary dividend ban, bank capital stands well above minimum requirements, which leaves space for inorganic growth. Another factor in favour of consolidation is that there is less uncertainty around balance-sheet valuations following significant de-risking of NPLs, which would have been a hindrance in the past.