UniCredit's new dealmaker CEO must 'walk tightrope' with potential MPS merger

UniCredit SpA's decision to pick prolific dealmaker Andrea Orcel as its next CEO raises questions about the bank's future approach to M&A, particularly with regards to a potential deal involving Banca Monte dei Paschi di Siena SpA, according to analysts.

Italy's largest bank by assets confirmed late on Jan. 27 that the board of directors nominated ex-UBS Group AG banker Orcel to take over from current CEO Jean Pierre Mustier, who resigned in November.

Orcel has been involved with some of Europe's most high-profile bank mergers in his career. During a stint at Merrill Lynch, he orchestrated the merger of Unicredito and Credito Italiano in 1998, creating the bank that is now UniCredit. He also advised Royal Bank of Scotland, now NatWest Group PLC, on its ill-fated acquisition of ABN AmroBank NV in 2007.

One of the immediate challenges facing Orcel at UniCredit will be a decision about whether to proceed with a merger with troubled Monte dei Paschi, which is being pushed hard by certain parts of the Italian political establishment.

This will be Orcel's first time at the head of a European bank, but it is not the first time he has taken a shot at the role of CEO. Banco Santander SA offered Orcel the top job in September 2018, but then went on to withdraw the offer in 2019 over a dispute over Orcel's remuneration, resulting in a prolonged legal battle. The appointment surprised the market at the time, given that Orcel's background is in investment banking, while Santander is predominantly a retail bank.

'Walking a tightrope'

Monte dei Paschi is not a straightforward acquisition target as it has a capital hole of as large as €2 billion and legal bills in the region of €10 billion relating to historic losses to investors.

"Orcel will need to walk the tightrope of defending UniCredit's shareholder value and the political hot potato of the potential Banca Monte dei Paschi absorption," Victor Galliano, a financials and financial technology analyst at Galliano's Latin Notes Ltd. and contributor to SmartKarma, an independent investment research platform, said in a Jan. 27 note for the latter.

He may act as an "effective check" against UniCredit chairman-designate Pier Carlo Padoan, who has been one of the strongest proponents of a merger with Monte dei Paschi, Galliano said. "Politically connected" Padoan, a former Italian minister of economy and finance, has been a vocal supporter the deal, Galliano said.

Orcel already has a long history with Monte dei Paschi, having advised the bank to buy Banca Antonveneta SpA from Santander in 2008. The €9 billion deal later came under fire for its high price tag, and it later emerged that the Italian central bank had warned Monte dei Paschi against the acquisition due to Banca Antonveneta's governance issues and high proportion of bad loans.

The team of analysts at Jefferies agrees that a potential Monte dei Paschi deal is a "key question" hanging over UniCredit as Orcel steps into the CEO role. It remains to be seen whether Orcel will push ahead with a merger or whether he will stick to Mustier's "no M&A" script, a Jan. 26 note said.

Since unveiling the bank's "Team 23" strategy in late 2019, Mustier had been adamant that mergers were off the table.