MPS chief puts revamp of world's oldest bank to market test with Mediobanca bid

Reuters

14-04-2025

MILAN, April 14 (Reuters) - When a group of Harvard Business School students visited Italy's Monte dei Paschi di Siena (BMPS.MI), opens new tab in January, they gathered notes to build a case study on how to turn around a bank.
The strength of that case may now depend on whether shareholders on Thursday approve CEO Luigi Lovaglio's surprise 12-billion-euro ($13.6 billion) hostile takeover offer for rival Mediobanca (MDBI.MI), opens new tab, made just days after the student visit.
The softly-spoken 69-year-old, a stalwart of Italian banking for more than five decades, could need all his powers of persuasion to prevail with a plan that has divided opinion.
Advisory group Institutional Shareholder Services has urged shareholders to reject the plan as it leaves "little margin for error", while rival Glass Lewis is in favour, saying Lovaglio's track record provides guarantees for shareholders.
The epitome of Italy's banking woes until a 2017 state bailout that made it an expected future takeover target, MPS stunned Italian finance when it moved on Mediobanca.
Fans say it has put the world's oldest bank on the front foot, after years of fixing its finances.
"Lovaglio turned MPS from a passive into an active player. Anyone who's ever been in charge will tell you there is no better way of motivating people," Alessandro Profumo, former CEO of Italian bank UniCredit (CRDI.MI), opens new tab, where Lovaglio spent 44 years, and former MPS chairman, told a recent event.
Recruited to MPS in February 2022, Lovaglio soon after braved tough markets to push through a vital cash call. He then succeeded in riding higher interest rates to grow profits despite shedding a fifth of the bank's workforce in a quarter.
Lovaglio says Mediobanca's wealth and investment banking operations will complement MPS' commercial franchise, while the target's valuable stake in insurer Generali (GASI.MI), opens new tab provides options about what to do next.
Mediobanca has said the tie-up risks weakening its business model.
In cutting its 64% stake to the current 11.7%, the Italian government had said it wanted a tie-up to grow MPS into a major player.
But when UniCredit late last year swooped on Banco BPM (BAMI.MI), opens new tab - widely seen as MPS's most likely merger partner - Lovaglio's options shrank.
"On the market there are not a lot of opportunities," he said in unveiling the Mediobanca bid.
Lovaglio has the backing of construction tycoon Francesco Caltagirone and the heirs of the late billionaire Leonardo Del Vecchio, who together own slightly less than 20% of MPS after building stakes when Rome last sold a chunk of shares in November.
They also own 27% of Mediobanca itself and 17% of Generali, stoking speculation about their ultimate goal.
But to win Thursday's vote, Lovaglio must also convince other MPS shareholders - mostly foreign funds that bought into share sales by the government in November 2023, opens new tab and March 2024, opens new tab.
Having expected MPS would be taken over, these funds must weigh up a deal that relies firstly not on cost cuts, but on tax credits which MPS can use to boost profits if it secures 50% plus one share of Mediobanca.
Lovaglio's pitch is likely to draw heavily on his famed tenacity, and nuts and bolts knowledge of commercial banking.
One adviser, who declined to be named, remembered being quizzed by Lovaglio in the middle of the night as the CEO perused documents first hand, including the hundreds of pages relating to MPS' judicial cases.
"I'm no genius," Lovaglio once told Reuters. "I simply developed a method over time. But to develop a method you first need a passion for good results."
($1 = 0.8799 euros)