Finance

Why Italy could see big M&A deals in banking

Published

8 months ago

August 8, 2024

Business Finance News

Banking analysts assess the possibility of a banking merger in Italy.

Bloomberg | Bloomberg | Getty Images

MILAN, Italy — European policymakers have longed for bigger banks across the continent.

And Italy might be about to give them their wish with a bumper round of M&A, according to analysts.

Years after a sovereign debt crisis in the region and a government rescue for Banca Monte dei Paschi (BMPS) that saved it from collapse, many are looking at Italy’s banking sector with fresh eyes.

“If you assess individual banks in Italy, it’s difficult not to believe that something will happen, I would say, over the next 12 months or so,” Antonio Reale, co-head of European banks at Bank of America, told CNBC.

Reale highlighted that BMPS had been rehabilitated and needed re-privatization, he also said UniCredit is now sitting on a “relatively large stack of excess of capital,” and more broadly that the Italian government has a new industrial agenda.

UniCredit, in particular, continues to surprise markets with some stellar quarterly profit beats. It earned 8.6 billion euros last year (up 54% year-on-year), pleasing investors via share buybacks and dividends.

Meanwhile, BMPS, which was saved in 2017 for 4 billion euros, has to eventually be out back into private hands under an agreement with European regulators and the Italian government. Speaking in March, Italy’s Economy Minister Giancarlo Giorgetti said “there is a specific commitment” with the European Commission on the divestment of the government stake on BMPS.

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“In general, we see room for consolidation in markets such as Italy, Spain and Germany,” Nicola De Caro, senior vice president at Morningstar, told CNBC via email, adding that “domestic consolidation is more likely than European cross-border mergers due to some structural impediments.”

He added that despite recent consolidation in Italian banking, involving Intesa-Ubi, BPER-Carige and Banco-Bpm, “there is still a significant number of banks and fragmentation at the medium sized level.”

“UniCredit, BMPS and some medium sized banks are likely to play a role in the potential future consolidation of the banking sector in Italy,” De Caro added.

Speaking to CNBC in July, UniCredit CEO Andrea Orcel indicated that at current prices, he did not see any potential for deals in Italy, but said he is open to that possibility if market conditions were to change.

“In spite our performance, we still trade at a discount to the sector […] so if I were to do those acquisitions, I would need to go to my shareholders and say this is strategic, but actually I am going to dilute your returns and I am not going to do that,” he said.

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“But if it changes, we are here,” he added.

Paola Sabbione, an analyst at Barclays, believes there would be a high bar for Italian banking M&A if it does occur.

“Monte dei Paschi is looking for a partner, UniCredit is looking for possible targets. Hence from these banks, in theory several combinations could arise. However, no bank is in urgent need,” she told CNBC via email.

European officials have been making more and more comments about the need for bigger banks. French President Emmanuel Macron, for example, said in May in an interview with Bloomberg that Europe’s banking sector needs greater consolidation. However, there’s still some skepticism about supposed mega deals. In Spain, for instance, the government opposed BBVA’s bid for Sabadell in May.

“Europe needs bigger, stronger and more profitable banks. That’s undeniable,” Reale from Bank of America said, adding that there are differences between Spain and Italy.

“Spain has come a long way. We’ve seen a big wave of consolidation happen[ing] right after the Global Financial Crisis and continued in recent years, with a number of excess capacity that’s exited the market one way or the other. Italy is a lot more fragmented in terms of banking markets,” he added.

Finance

China’s response to U.S. tariffs will likely focus on stimulus, trade

Published

3 hours ago

April 3, 2025

Business Finance News

Chinese national flags flutter on boats near shipping containers at the Yangshan Port outside Shanghai, China, February 7, 2025.

Go Nakamura | Reuters

BEIJING — China’s reaction to new U.S. tariffs will likely focus on domestic stimulus and strengthening ties with trading partners, according to analysts based in Greater China.

Hours after U.S. President Donald Trump announced additional 34% tariffs on China, the Chinese Ministry of Commerce called on the U.S. to cancel the tariffs, and vowed unspecified countermeasures. The sweeping U.S. policy also slapped new duties on the European Union and major Asian countries.

Chinese exports to the U.S. this year had already been hit by 20% in additional tariffs, raising the total rate on shipments from China to 54%, among the highest levied by the Trump administration. The effective rate for individual product lines can vary.

But, as has been the case, the closing line of the Chinese statement was a call to negotiate.

“I think the focus of China’s response in the near term won’t be retaliatory tariffs or such measures,” said Bruce Pang, adjunct associate professor at CUHK Business School. That’s according to a CNBC translation of the Chinese-language statement.

Instead, Pang expects China to focus on improving its own economy by diversifying export destinations and products, as well as doubling down on its priority of boosting domestic consumption.

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China, the world’s second-largest economy, has since September stepped up stimulus efforts by expanding the fiscal deficit, increasing a consumption trade-in subsidy program and calling for a halt in the real estate slump. Notably, Chinese President Xi Jinping held a rare meeting with tech entrepreneurs including Alibaba founder Jack Ma in February, in a show of support for the private sector.

The policy reversal — from regulatory tightening in recent years — reflects how Beijing has been “anticipating the coming slowdown or even crash in exports,” Macquarie’s Chief China Economist Larry Hu said in a report, ahead of Trump’s latest tariff announcement. He pointed out that the pandemic-induced export boom of 2021 enabled Beijing to “launch a massive regulatory campaign.”

“My view stays the same,” Hu said in an email Thursday. “Beijing will use domestic stimulus to offset the impact of tariffs, so that they could still achieve the growth target of ‘around 5%.'”

Instead of retaliatory tariffs, Hu also expects Beijing will focus on still using blacklists, export controls on critical minerals and probes into foreign companies in China. Hu also anticipates China will keep the yuan strong against the U.S. dollar and resist calls from retailers to cut prices — as a way to push inflationary pressure onto the U.S.

China’s top leaders in early March announced they would pursue a target of around 5% growth in gross domestic product this year, a task they emphasized would require “very arduous work” to achieve. The finance ministry also hinted it could increase fiscal support if needed.

About 20% of China’s economy relies on exports, according to Goldman Sachs. They previously estimated that new U.S. tariffs of around 60% on China would lower real GDP by around 2 percentage points. The firm still maintains a full-year forecast of 4.5% GDP growth.

Changing global trade

What’s different from the impact of tariffs under Trump’s first term is that China is not the only target, but one of a swath of countries facing hefty levies on their exports to the U.S. Some of these countries, such as Vietnam and Thailand, had served as alternate routes for Chinese goods to reach the U.S.

At the Chinese export hub of Yiwu on Thursday, businesses seemed nonchalant about the impact of the new U.S. tariffs, due to a perception their overseas competitors wouldn’t gain an advantage, said Cameron Johnson, a Shanghai-based senior partner at consulting firm Tidalwave Solutions.

He pointed out that previously, the U.S. had focused its trade measures on forcing companies to remove China from their supply chains and go to other countries. But Chinese manufacturers had expanded overseas alongside that diversification, he said.

“The reality is this [new U.S. tariff policy] essentially gives most of Asia and Africa to China, and the U.S. is not prepared,” Johnson said. He expects China won’t make things unnecessarily difficult for U.S. businesses operating in the country and instead will try harder to build other trade relationships.

Since Trump’s first four-year term ended in early 2021, China has increased its trade with Southeast Asia so much that the region is now Beijing’s largest trading partner, followed by the European Union and then the U.S.

The 10 member states of the Association of Southeast Asian Nations (ASEAN) joined China, Japan, South Korea, Australia and New Zealand in forming the world’s largest free trade bloc — the Regional Comprehensive Economic Partnership (RCEP) — which came into being in early 2022. The U.S. and India are not members of the RCEP.

“RCEP member countries will naturally deepen trade ties with one another,” Yue Su, principal economist, China, at the Economist Intelligence Unit, said in a note Thursday.

“This is also partly because China’s economy is likely to remain the most — or at least among the most—stable in relative terms, given the government’s strong commitment to its growth targets and its readiness to deploy fiscal policy measures when needed,” she said.

Uncertainties remain

The extent to which all countries will be slapped with tariffs this week remains uncertain as Trump is widely expected to use the duties as a negotiating tactic, especially with China.

He said last week the U.S. could lower its tariffs on China to help close a deal for Beijing-based ByteDance to sell TikTok’s U.S. operations.

But the level of new tariffs on China was worse than many investors expected.

“Unlike some of the optimistic market forecasts, we do not expect a US-China bilateral grand bargain,” Ting Lu, chief China economist at Nomura, said in a note Thursday.

“We expect tensions between these two mega economies to worsen significantly,” he said, “especially as China has been making large strides in high-tech sectors, including AI and robotics.”