An expected bid by Intesa Sanpaolo, Italy’s biggest retail bank, for the country’s largest insurance company is a bold gamble that has stunned the cozy world of Italian finance and carries risks for both predator and prey.
The extent of what Intesa CEO Carlo Messina was planning dawned on Philippe Donnet, the French head of Generali, when he tried to check media reports that Intesa was preparing to build a stake in the insurer.
Donnet called his counterparts at Intesa on Jan. 23, according to two sources close to the matter, but no one was available to take his call.
It was a sign the gloves were off in the so-called salotto buono, or drawing room, the informal club that has pulled the strings in Italian business and banking since World War Two.
Bonnet’s riposte on the same day was to buy a 3 percent stake in Intesa. Under Italian cross-shareholding rules, Intesa would now have to buy at least 60 percent of Generali if it made a bid.
By threatening Generali, one of Italy’s most venerable institutions, Messina is also opening up a front against merchant bank Mediobanca – the power behind the throne at Generali with a 13 percent stake. Mediobanca’s own biggest investor is Intesa’s domestic arch-rival UniCredit.
“This is Messina’s boldest move, I have a lot of respect for him but he’s putting his entire career at risk on a deal of this magnitude,” said a senior banker.
As the week unfolded, Intesa eventually acknowledged it was looking at a possible deal with Generali, though Messina said on Thursday the bank would take its time. Sources say Intesa is considering an all-stock bid for the insurer in a deal that would create a powerhouse with a market value of more than 60 billion euros.
Intesa felt it had to jump in because it feared Generali, long regarded as a takeover target, could fall in the hands of a foreign predator and create a big asset management competitor on Intesa’s home turf, the sources said.
The government has come under pressure to ensure Generali remains Italian but has said it is unwilling to intervene.
Intesa is a rarity among Italian banks – profitable and well capitalized. While its largest rivals, UniCredit and Monte dei Paschi, are striving to turn around under the weight of billions of euros worth of bad loans, Intesa has been able to pay generous dividends despite Italy’s economic downturn.
Generali however has labored to convince investors that its finances are solid enough to meet regulatory requirements and has had three CEOs since 2012.
Political uncertainty has intensified fears over the insurer’s fate, because a weak Italian government would be less able to defend it against a foreign bid at a time when European insurers are looking at possible acquisitions as their margins are squeezed by negative interest rates.
“It is highly likely that Axa and Allianz are looking at Generali. In the process of European consolidation, it is the most attractive prey,” one source said.
AXA said last week it is not interested in a bid for Generali. Allianz has declined to comment.
Bankers say both companies would at the very least be keen to buy some of Generali’s assets that would have to be sold after a deal with Intesa to address antitrust issues and minimize overlaps between the two, given that Intesa already has a big insurance business of its own.
AXA is seen as more interested in Generali’s German operations, with Allianz eyeing France, Spain and eastern Europe. Zurich Insurance, whose boss Mario Greco ran Generali until he quit last year after disagreements with Mediobanca, is also tipped as a suitor for the Italian firm.
Buying Generali, which had 472 billion euros of assets under management at the end of 2016, would cement Intesa’s shift towards lucrative wealth management, as low rates are also eating into retail banks’ profits.
But the success of Messina’s gamble is far from granted.
“It’s not an obvious deal and it’s quite complex,” said a banker. “Intesa would need approval from regulators and must convince its own shareholders about the rationale of such a tie-up. Plus it runs the risk of a rival launching its own bid for Generali.”
Position of Strength
Messina said on Thursday he would not sacrifice Intesa’s strong capital nor its large dividends for the sake of a deal – but bankers say he may have to offer a hefty premium for Generali. The insurer’s market value rose by 14 percent to 24 billion euros last week as bid rumors swirled.
“We’re analyzing various alternatives, it’ll depend on the price. We’ll take our time to make our assessment, we’re in a position of strength,” Messina said.
Meanwhile, from its storied headquarters near Milan’s La Scala opera house, Mediobanca awaits Messina’s move.
A source close to the situation said CEO Alberto Nagel was in constant contact with his bank’s shareholders, plotting his counter-attack. In response to Italy’s economic crisis, the investment bank has greatly reduced the web of cross-shareholdings that for decades allowed it and a few wealthy families to control Italian finance, industry and media through relatively small stakes.
It had also vowed to cut its stake in Generali – which last year accounted for more than 40 percent of its profits – as part of a longer term plan to bolster its capital, though it has so far not done so. Intesa’s offensive is now challenging Mediobanca’s control of Generali.
“For Mediobanca, the stakes could not be higher. Losing Generali would mean losing a steady stream of income, and ultimately seeing its network of influence vanish,” the banker said.
In Rome, the prospect of a possible Generali break-up has fueled concerns in some political circles, even though Economy Minister Pier Carlo Padoan said it was a private matter between private companies in which the government has no stake.
A government source said there was not much Rome could do and it was not clear whether Intesa’s bid would involve any foreign groups.
Highlighting the sensitivity of the issue, more than 100 senators – many from the ruling Democratic Party – have tabled a question in parliament asking the government how it plans to ensure Generali remains Italian and is not carved up.
Generali and Intesa together would also hold 160 billion euros of Italian government bonds, increasing their exposure to the country’s feeble economy.
A source close to the deal said the European Central Bank, which would have to give its blessing for any offer, had yet to be informed of Intesa’s plans.
Past tie-ups between banks and insurers have often foundered, including Allianz’s 24-billion euro takeover of Dresdner Bank in 2001, and regulators have in recent years opposed mega-deals that make banks too big to fail.
(Additional reporting by Gianluca Semeraro in Milan, Pamela Barbaglia in London, Alexander Huebner in Frankfurt; editing by Giles Elgood)
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