Finance
How Italy’s banking M&A wave started crashing
View of the branches of the Italian bank Monte deo Paschi in Rome.
Nurphoto | Nurphoto | Getty Images
By late spring, Italy’s banking world was swept up in a storm of convoluted takeover bids and counterbids involving a swathe of the country’s major lenders. Three months later, only one high-profile bid is still standing.
It started with UniCredit‘s July decision to drop the “drag” of its nearly 15-billion-euro ($17.5-billion) bid for Banco BPM on the cusp of the proposal’s natural expiry, citing the opacity of conditions imposed by the Rome administration via its “golden power” screening rules. Then, Mediobanca‘s shareholders this month voted against the lender’s roughly 7-billion-euro offer for Banca Generali, thwarting what was widely seen as a defensive play against state-backed Monte dei Paschi‘s (MPS) interest in at least 35% of Mediobanca.
MPS has yet to give up.
Consolidation is one recourse for Europe’s cash-flush lenders to bulk up their scale and compete with Wall Street’s historically more lucrative banking giants. The M&A appetite has gripped Europe’s lenders at a time of markedly improved performance in the sector, with restructuring programs, the European defense boost, higher investment banking returns amid U.S. tariff-led volatility and an increase in broader M&A dealmaking in Southern Europe bolstering bottom lines.
In particular, the entangled web of offers from several of Italy’s key lenders — with pack leader Intesa Sanpaolo notably absent — builds on long-brewing momentum in what Fitch Ratings in April billed as a “more fragmented” banking system than in some other European nations.
“Increased scale could enable banks to better support large corporate investments, including those linked to European and Italian defence sector initiatives,” the agency said at the time.
Italy’s economy has been fertile ground for banking growth of late. It has “outperformed most of its Eurozone peers in recent years, although momentum may ease in coming years as an investment boom driven by [Next Generation EU] funds and construction spending fades away,” Deutsche Bank analysts said in an August report, stressing the country will need to pivot toward a more consumption-driven economy — facing the incoming pressures of higher U.S. tariffs.
The International Monetary Fund forecasts Italy — where it pronounced “further improvement in banking sector soundness” in a July report — will notch 0.5% economic growth this year, outpacing Germany’s projected 0.1% expansion over the same period.
M&A run still to go
While the pace of Italy’s consolidation attempts has simmered, analysts say we’re far from a denouement.
“Of late we have seen Banca BPER successful taking over Banca Sondrio, and Illimity Bank acquired by Banca Ifis. Meanwhile Monte dei Paschi is resolutely marching on Mediobanca, and Banco BPM’s independence might be short-lived, with Credit Agricole launching towards a 20% stake,” said Filippo Maria Alloatti, head of financials for credit at Federated Hermes Limited. “A merger between Credit Agricole Italy and Banco BPM seems likely in the medium-term.”
He added that the odds of MPS prevailing in its offer for Mediobanca are now higher — a view echoed by William Cain, head of M&A Research EMEA at Mergermarket, who told CNBC that “the vote on Banca Generali was effectively a referendum on Mediobanca’s standalone strategy and shareholders have now made their views clear on that point.”
He went on to say that, “There is an increasing chance BMPS will secure the 35% of Mediobanca’s share [that] capital management has previously said it would be happy with – and perhaps a lot more.”
Italy’s banks have also set sights beyond the country’s borders. UniCredit’s first play last year was to progressively accrue a synthetic stake of up to roughly 28% in German lender Commerzbank. The Italian bank has since converted this into a 26% equity shareholding in Commerzbank and has secured the European Central Bank’s blessing to hold up to 29.9% — stirring speculation over plans for a potential takeover, which Commerzbank and the Berlin administration have resisted.
The same UniCredit on Thursday said it has raised its holding in Greece’s Alpha Bank to nearly 26%, after engaging financial instruments for an additional 5% stake.
“What’s happening is not just an Italian story – Italy has become an important case study for the EU to test how M&A can evolve in the European banking sector,” Stefano Caselli, dean of the SDA Bocconi School of Management, told CNBC by email.
The consolidation fever has indeed spread beyond Italy. In July, Spain’s Banco Santander said it was buying British high street bank TSB for £2.65 billion from Sabadell. The Catalonian lender has itself been fighting off the advances of Spanish peer BBVA, which has decided to keep its takeover bid alive despite strict conditions from the Madrid government to clear the transaction.
The EU has challenged Spain over its intervention in the BBVA bid and has likewise found itself at odds with Rome over its use of the “golden powers” rules, which are typically invoked against transactions that threaten national security, in the UniCredit takeover. The European Commission has also posed questions over the Italian government’s November sale of a 15% stake in the bailed-out MPS, in which Rome retains a 11.73% shareholding. Italian Finance Minister Giancarlo Giorgetti has defended the “absolute correctness” of the stake exit, separately threatening to resign if he were overruled on the conditions Rome imposed on UniCredit, which included a timeline for the lender to halt its activities in Russia and a request to leave Banco BPM’s loan-to-deposit ratio unchanged for five years.
“The Italian Finance Ministry’s intervention was the final nail on the coffin for UniCredit’s 3rd takeover attempt at Banco BPM,” Alloatti pronounced.
In the case of the MPS bid, the SDA Bocconi School of Management’s Caselli argued that Rome “simply acted as a shareholder.”
“On the one hand, we expect the State to step in when a bank is in trouble. On the other hand, we want taxpayers not to lose money but ideally to see gains. At the same time, we want the State to play a neutral role,” Caselli said. “It’s difficult to achieve all of this at once.”
EU scrutiny
The EU, a proponent of lender consolidation, has launched the banking union supervision framework since the financial crisis, but is yet to complete the initiative.
“Hopes that the banking union would lead to closer integration of banking markets across Europe have not fully materialized,” Claudia Buch, chair of the supervisory board of the ECB, said in April. “Cross-border mergers have remained relatively rare, about 75% of banks’ lending portfolios are invested in their home markets, and few banks have truly European business models.”
Tie-ups have dwindled the number of EU banks since 2009, although roughly 4,752 were still operating in the European Union as of June, with 418 in Italy, according to Statista.
And the lack of blockbuster cross-border tie-ups is grinding some gears within the bloc.
“I feel frustrated because I continue to see domestic mergers with a domestic logic, not single-market mergers,” European Banking Authority Chairman Jose Manuel Campa told Politico earlier this week.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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