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Explainer-Third time lucky? Why Banco BPM appeals to UniCredit CEO -Breaking

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© Reuters. A woman walks past Banca Popolare di Milano ( BPM) downtown Milan, Italy, February 11, 2016. REUTERS/Stefano Rellandini/File Photo

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Valentina Za and Andrea Mandala

MILAN (Reuters) – Since Andrea Orcel took over UniCredit’s reins last April, Italy’s third-largest Bank Banco BPM was a prominent choice for Orcel.

Orcel has resisted the temptation to move for Banco BPM this year because it was not possible for Italy’s government to reach a deal on a possible rescue for Monte dei Paschi.

According to sources, Reuters reports that the chief executive was set to make a takeover offer in February. But a leak made Banco BPM shares fly and Russia invaded Ukraine a few day later.

UniCredit’s exposure of 14 billion euros to Russia makes it the most volatile credit company in Russia. Orcel is busy.

UniCredit is still a great domestic target because Banco BPM remains unbeatable. Let’s find out why.

(Graphic: UniCredit and Banco BPM share price performance over the past year, https://fingfx.thomsonreuters.com/gfx/mkt/jnpwebjyopw/UniCreditBanco.png)

MARKET SHARE

UniCredit would be able to purchase Banco BPM to catch up to Intesa Sanpaolo, a rival heavyweight (OTC:), which already holds more than half of Italy’s market. Intesa Sanpaolo has taken over UBI in 2020 and secured more that a fifth.

Intesa has a 22% market share, which is double that of UniCredit. Analysts and bankers consider this a too large gap between Italy’s two top banks.

NORTHERN ROOTS

Banco BPM has a 6.7% market share with approximately 4,000,000 clients. The best selling point of Banco BPM is the fact that 77% are located in Italy’s northern regions.

Banco Popolare was formed from the merging of Milan-based BPM and Verona-based Banco Popolare. It controls 12% in the Lombardy banking market. This is Italy’s industrial heartland, which makes up a fifth the country’s total economic output.

UniCredit’s Lombardy market shares of 6% are, however, widely considered too small to be the nation’s No.2 banking institution.

INTEREST RATE SENSITIVITY

Orcel desired to make a move on Banco BPM prior to rate hikes expected in Ukraine.

Analysts think Banco BPM would benefit from an increase in the European Central Bank’s monetary policy. However, rate increases have yet to be priced in.

Banco BPM has calculated that a 100-basis point rise in interest rates would result in additional income of its lending business, which is 430 millions euros. This calculation was based upon fourth-quarter results.

PURCHASING Power

UniCredit shares gained over 5% since Orcel announced his new strategy for 2024.

According to sources, Orcel sought to take advantage of UniCredit’s rise in share prices. This gave him the currency to buy all-share deals.

Orcel was able to take advantage of the rally in UniCredit shares, and Banco BPM’s failure to benefit from tightening rates. This window has now closed.

UniCredit shares lost over 20% in the last week because of the war. ($1 = 0.8815 euros)

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