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Home , Mediobanca, Unicredit

THE – 7 GENNAIO 2009

The questionable logic of an Italian financial colossus di Paul Betts

Italy has always regretted its lack of national corporate champions with a truly global reach. Sure, the country has boasted a thriving network of small and medium-sized industries. But an industrialised nation also needs large multinational groups to underpin its economic system and can only claim a handful of such companies at best. These include the two energy groups and , the automotive conglomerate, the state-controlled defence and aerospace company Finmeccanica and the now much weakened telecommunications group Telecom Italia. Consolidation in the banking industry has created two large - the mainly domestic Intesa and until its recent difficulties the pan-European . Any list would be incomplete without Generali, one of Europe's top three insurers. Now there seem to be tentative moves that could end up creating a new Italian financial colossus by bringing initially closer together UniCredit, , the investment , and Generali. Ultimately, the three could combine to form what would undoubtedly constitute one of Europe's biggest financial conglomerates. According to Italian newspaper reports, UniCredit and Mediobanca controlling shareholders have been examining whether a merger between the two banks is possible. The two sides have so far denied that they have even informally considered such a move, but no one really believes them. UniCredit is Mediobanca's largest shareholder with about 8.7 per cent. Once regarded as Italy's most international and well managed banking group, UniCredit and its chief executive, Alessandro Profumo, fell off their pedestal last year as a result of some errors of judgment in their handling of the global financial crisis. UniCredit is now shoring up its capital base by selling assets and launched this week a €3bn ($4bn) issue of convertible equity instruments. Should its capital base need further bolstering, then a merger with Mediobanca could be an option. The Milan investment bank has held up well during the credit crisis but it too might be starting to feel the pinch. Mediobanca recently launched a activity to raise cheap funding and expanded in consumer credit. But these moves are unlikely to make a real difference in the short term and the bank may be tempted to reinforce its financing by plugging into UniCredit's extensive retail network. In any case, if the two sides are indeed talking then it must be convenient for both sides to be doing so. Assuming that core UniCredit and Mediobanca shareholders are discussing a possible merger, such a combination would also involve Generali. Mediobanca is the insurer's core shareholder with 15 per cent, while UniCredit owns a smaller stake, although it has said it might sell it. Under the circumstances, it does not take a large stretch of the imagination to envisage an eventual tripartite combination between UniCredit, Mediobanca and Generali. Such a construction may well be politically attractive for some, but it would create a huge new concentration of corporate power. Worse, it may not be in the best interest of the country, let alone the component parts of the new giant. If there is one clear lesson of the recent crisis, it is the danger of creating large financial conglomerates that mix unfamiliar businesses together. , Generali's German rival, has lived to bitterly regret its combination with Dresdner which it is now offloading to . , and other victims of the crisis have all shown the limits of the bancassurance model. AIG was brought down not so much by its business but by its banking unit that invested in subprime products.