Italian Bank Consolidation: Benefits To The Targets But MPS Politics A Barrier

Italian bank merger speculation - likely credit positive for targets, especially Monte Paschi but barriers remain.

• A sell-side report this morning is reprising the Italian banking merger theme. To remind, Italy remains one of the less consolidated large banking markets in Europe with a number of listed mid-sized banks out there. Unicredit is seen as the key aggressor here.
• The report specifically mentions BPM, BPER and Monte Paschi as potential targets, all of which we’d agree with. We view Mediobanca as being a lower probability due to the execution risks inherent in mergers involving investment banks.
• Naturally, the credit of that target would tighten in these situations. BPM and BPER are, generally, higher quality businesses already but MPS’s credit has been much more mixed than peers over the last month so, in that sense, has more to tighten. The politicised nature of that issuer (and market) could well be a barrier, however good the industrial logic might be.