Crédit Agricole faces political hurdles, UniCredit competition in BPM pursuit

Italian politicians such as Matteo Salvini and his Lega party are said to be among those against a move by Crédit Agricole to take over Banco BPM.
Source: Simona Granati - Corbis/Corbis News via Getty Images

Crédit Agricole SA faces a raft of challenges if it is to ultimately acquire and successfully integrate Italy's Banco BPM SpA.

The French banking group on April 7 purchased a 9.2% stake in BPM, becoming its largest shareholder and sparking speculation that it was preparing a takeover bid. A tie-up would create the third-largest lender in Italy, more than doubling CredAg's branch network in the country and further broadening its reach beyond its home market.

Any CredAg bid for BPM is likely to face resistance from politicians, BPM's management and even CredAg shareholders, as well as competition from local peer UniCredit SpA.

"The execution risk would be pretty high because we're talking about a deal that would be transformative for both banks," said Flora Bocahut, senior equity research analyst at global investment bank Jefferies. "There are many obstacles that one needs to consider."

CredAg did not comment beyond confirming that it has "not applied for the supervisory authorities' authorization to cross the 10% threshold in Banco BPM's share capital." Passing that threshold would require the bank to disclose its intentions relating to BPM for the next six months.

BPM did not respond to a request for comment.

Multiple hurdles

BPM attracted interest from UniCredit as recently as March. Italy's second-largest lender was forced to halt its planned bid for BPM after its share price sank in response to Russia's invasion of Ukraine. UniCredit has a €7.4 billion exposure to Russia.

UniCredit, which backed out of a deal to buy troubled lender Banca Monte dei Paschi di Siena SpA in 2021, is expected to revive its interest in BPM once the issues around its Russian exposure are resolved, said Gonzalo Lopez, Southern Europe bank analyst at equity research company Redburn. BPM is a "perfect fit" for UniCredit, which would be better equipped, better positioned and more incentivized for an acquisition, said Lopez.

"If UniCredit makes a move for BPM, I would be very surprised if CredAg gets into that battle," Lopez said.

CredAg is unlikely to win support from the Italian government for a takeover of one of the country's largest banks, particularly if an alternative bid from a domestic lender is possible. The French bank's stake purchase has roiled Italian political and financial circles, prompting some to urge the Italian Treasury to take a defensive stance toward a full takeover by CredAg, Reuters reported.

The Italian government has the right to veto bids in industries deemed strategically important, such as banking, telecom or energy, under so-called "golden power rules."

"Protectionism in Italy is a problem," said Arnaud Journois, vice president, financial institutions at credit rating agency DBRS Morningstar. "Foreign banks have found it difficult to enter or expand in the market even when troubled banks have been up for sale."

Hostile takeover?

CredAg in a statement said its stake in BPM, acquired through its asset management division Amundi Asset Management SAS, is aimed at "expanding the scope of strategic partnerships between the two banks," which includes a consumer finance joint venture, Agos Ducato SpA. CredAg is also reportedly among the front-runners for a deal that would allow the French group to sell insurance to BPM's clients.

CredAg's purchase of its stake in BPM without the knowledge of the Italian bank's management suggests another potential hurdle in any prospective takeover bid. Merger talks between CredAg and BPM in 2020 failed, which makes the option of a hostile takeover by the French lender more likely.

BPM CEO Giuseppe Castagna is said to be reluctant to see his bank swallowed up by larger rivals, Reuters reported. The bank explored a potential tie-up with mid-size Italian rival BPER Banca SpA in 2021, described as a "merger of equals."

Attempting to buy BPM without the cooperation of its management could become "tricky ... and quite messy," said Johann Scholtz, bank equity analyst at U.S. financial services firm Morningstar. "At some stage, you will have to make some kind of offer to minority shareholders and that's when it can become quite expensive as you have to sweeten the deal for them to accept any potential offer."

Any such attempt to win over minority shareholders could strain CredAg's capitalization levels. Assuming CredAg would need to offer a 30% to 50% premium on BPM's share price to its shareholders to secure a deal, the acquisition would cost CredAg between 115 and 135 basis points on its common equity Tier 1 capital ratio, according to calculations done by Jefferies. This would reduce the French bank's CET1 ratio to 10.5%, which could unnerve shareholders, said Bocahut.

"A core Tier 1 ratio of 10-point-something does sound low," said Bocahut. "Can they actually afford to buy Banco BPM knowing that the excess capital that they have over their own target and their minimum requirement is not that much?"

CredAg said April 27 that it would sell 78.7% of its capital in its Moroccan unit Crédit du Maroc SA, which will boost its CET1 ratio by 10 bps, it said.

Further complications could arise between CredAg and BPM's insurance and asset management businesses, which would need to be resolved in any negotiation, said Bocahut. Structural and governance issues are also likely given that BPM is a larger retail bank in Italy than CredAg and would be eager to retain its retail banking brand and lead its retail operations, Bocahut added.

Strong rationale

Still, CredAg has a successful record of mergers and acquisitions in Italy and the benefits of a full takeover of BPM for the French lender could convince it to make a move eventually, according to Scholtz.

BPM's large retail banking network in affluent northern Italy, its insurance business — which CredAg has already expressed an interest in acquiring — and the securing of a distribution network in Italy for its asset management division Amundi make the Italian lender an enticing target, Scholtz said.

"BPM makes a lot of sense for Crédit Agricole. It ticks a lot of the boxes," said Scholtz.

For now, CredAg is likely to hold off on any major takeover moves and weigh its options in the months ahead, said Bocahut.

"At this stage, CredAg's stake is about getting a seat at the table, being part of the discussion, looking at BPM's insurance business, and maybe more," said Bocahut.