Intesa, Saopaolo Merger of $77 B (Update 5)

123jump.com Staff
26 Aug, 2006
Frankfurt

Banca Intesa and Saopaolo IMI have agreed to merge creating the largest Italian bank with $700 billion in assets and 7,700 branches. The current number one, Unicredit has $300 billion in assets. The combined bank is likely to cut costs by laying-off people and investing in information system. Italian banking industry is likely to see more local mergers in the coming years to prevent other smaller rivals from being gobbled up by foreign banks.

Banca Intesa SpA and Saopaolo IMI, two mid-sized Italian banks have agreed to merge, creating the largest retail bank in Italy with $700 billion in assets.

Lawyer for Intesa, Alessandro Pedersoli, talked to reporters after leaving Intesa board meeting in Milan that board has approved the merger as reported in La Repubblica newspaper.

Intesa and Saopaolo shareholders will vote on the merger plan before the end of the year. Under the merger plan, Corrado Passera, CEO and Managing Director of Intesa will lead the combined bank. The combined bank will have a total of 115,000 employees.

Bankers expect, by the time the deal is final, Intesa will offer between 3 and 3.18 shares for one share of Saopaolo. Intesa stock closed at 5.05 euros and that of Saopaolo closed at 16.05 euros in Friday’s trading.

Banca Intesa’s largest shareholder, Credit Agricole in France, has approved the deal on Saturday and will hold 9.1% in the combined bank. Banco Santander in Spain, with 8.4% stake in Saopaolo IMI, will have 4.2% holding in the combined bank.

The combined bank will eclipse the largest Italian bank, Unicredit, with a total asset of $360 billion and 3,000 braches. The combined bank will have 13 million customers and 6,300 domestic retail branches and with market capitalization of $77 billion. The combined bank will control market share of 20% in Italian retail banking sector with a solid presence in the north. Analysts expect that banking and anti-trust regulators may ask the combined bank to sell between 5% and 10% of its branches which could fetch between $1.2 and $2.2 billion.

The official statement released by Banca Intesa showed that the combined bank will be headquartered in Turin and will have integration cost of at lest 1.5 billion euros. The new bank is expected to increase its profit at 13% a year till the year 2009 when its profit is likely to reach 7 billion euros.

Italian regulators have been informed of the merger talks and combined bank is likely to face little regulatory resistance. Since the appointment of Mario Draghi, Governor of Bank of Italy, talks of merger in Italian banking circles have intensified.

Banca d’Italia’s policy of preventing foreign bank from acquiring Italian banks had come under fire from European Union. Large European banks have attempted to buy profitable Italian banks in the last two years and several large foreign banks have significant operations in Italy.

Politicians and Union leaders have welcomed the deal at least on the release of merger news. A statement from the largest Italian labor union, UIL, stated that the merger is ‘positive’ for the bank but must not come at the expense of its members. Former Prime Minister Silvio Berlusconi, ‘welcomed’ the deal and expressed the sentiment that at last Italy has a bank that can operate and compete at European level.

Italian banking industry has been historically fragmented and localized and regulation has prevented merger between different categories of banks. Number of banks in Italy has declined from 1,156 in 1990 to 783 in December 2005. Foreign banks have managed to increase their share of new retail deposits from a low of 15% in 1996 to 48% in 2004. Italy is reported to have more than 30,000 bank branches, represented by 242 commercial banks, 36 co-operative banks, 439 mutual banks and 66 branches of foreign banks at the end of the year 2005.

In the last two years Italian banks have been a target of French and Dutch suitors. French bank BNP acquired a majority stake in BNL and Dutch giant ABN AMRO acquired Banco Antonveneta for $7.2 billion. Now that Intesa and Saopaolo have agreed to merge the focus of bankers will shift to decide the fate of Unicredit and Capitalia.

Italian banks are sought after by other European banks because Italians save more than Europeans and pay higher banking fees than other Europeans customers.