Monte dei Paschi di Siena takeover bid for Mediobanca has been the biggest step so far in a merger wave that is reshaping the Italian bank landscape. The historical €16 billion ($19 billion) cash-and-share bid coming from MPS Chief Executive Luigi Lovaglio is a watershed in Rome's decade-long bid to transform the sector and build a third major bank strong enough to compete with Intesa Sanpaolo and UniCredit.

The transaction, which attracted support from 86.3% of the shareholders of Mediobanca, is evidence of increasing momentum in Italian consolidation efforts. Two influential investors, heirs to late Ray-Ban magnate Leonardo Del Vecchio and construction magnate Francesco Gaetano Caltagirone, both investors in MPS last year, supported it. Through their endorsement, MPS was able to finalize one of the biggest deals in recent European bank history.

Government policy under stress

Monte dei Paschi di Siena takeover bid makes it harder for Rome's initial plan involving merging MPS with Banco BPM to create a third national champion. Italy remains MPS' shareholder with about 6% after having provided MPS' €5.4 billion bailout in 2017. MPS' bid for takeover has tilted the balance from the government's intended program.

Banco BPM itself has been examining its options, with CEO Giuseppe Castagna weighing potential mergers with either MPS or Credit Agricole's Italian business. Credit Agricole's France is already BPM's largest shareholder and will thus have influence in any transaction. UniCredit remains out of public view after it itself was unable to acquire BPM last November when its bid was blocked on national-security considerations due to exposure to Russia.

Search for new Mediobanca CEO

Amongst the most immediate problems after the Monte dei Paschi di Siena takeover bid is finding a new head for Mediobanca. Veteran CEO Alberto Nagel retired after nearly two decades at the helm and leaves behind a highly renowned name in asset management and investment banking.

Lovaglio has signaled that his choice for Nagel’s successor will be critical in reassuring Mediobanca’s employees and high-net-worth clients. While MPS specializes in commercial banking, Mediobanca’s strength lies in serving Italy’s ultra-wealthy customers and providing investment banking services. Insiders suggest the new CEO will need to balance those two worlds while preventing a talent exodus from Milan.

A turning point in consolidation

Italy's banks have been highly fragmented for quite some time, but the bid by Monte dei Paschi di Siena to take over highlights how political consensus, increasing profits, and improved credit conditions are driving restructuring. Italian banks spent years stripping out €300 billion in bad loans and streamlining costs, and are now profiting from rising interest rates that have sent profits to all-time highs.

In MPS's case, the acquisition from Mediobanca is not only a defence deal but also a platform for future growth. Led by Lovaglio, who succeeded in 2022 after Rome's failed bid to spin MPS off to UniCredit, the bank has regained profitability and declared its first dividend in 13 years.

Experts caution that the takeover by Mediobanca could create a new wave of mergers across Europe. "The consolidation loomed large," said Luigi De Sanctis, financial services leader for southeast Europe at advisory firm Oliver Wyman. "Intesa Sanpaolo began it with its hostile bid for UBI in 2020. Now the math for mergers works out again, and Monte dei Paschi di Siena takeover bid is a breathtaking example."

Outlook

With Lovaglio's hold on Mediobanca, it is set to create the merged firm a formidable contender in the next round of European bank consolidation. Integration moves, particularly in wealth management, will come under intense scrutiny.

The takeover itself raises fresh scepticism about Rome's influence in the sector as it diverts the trajectory from its original aspirations.

For the time being, the Monte dei Paschi di Siena takeover bid has redrew the landscape of Italian banking and ensured that MPS once looked upon as a problem bank once again remains at the center of European financial future.