By focusing on consumer finance, asset management, leasing and other lucrative niches of the Italian market, BNP Paribas has succeeded in recent years in building Italy into its second-largest European profit center after France. CEO Baudoin Prot has even bigger ambitions, though.
"To really make Italy work to its full potential, I knew we needed a retail branch system," he says. "But as a public company, how could we dare publicize the fact that we would really love such a network, since it appeared that the market was not effectively open to foreigners?"
The December resignation of Antonio Fazio, who had used his position as governor of the Bank of Italy to effectively bar foreign takeovers of Italian banks, gave Prot an opportunity, and last month he seized it. BNP Paribas agreed to acquire Banca Nazionale del Lavoro, Italy's sixth-largest bank, for E9 billion ($10.7 billion). The deal will make BNP the largest bank in the euro zone by assets, with some E961 billion, and will increase its customer base by nearly 20 percent, to 18.7 million. The bank's market capitalization of nearly E75 billion trails only that of Grupo Santander among euro-zone banks.
BNP Paribas' existing operations should enable it to leverage BNL's network without delay, Prot contends. "We are going to roll out a business model that we have tested and proven in France, and it will rely on many of the products that we currently sell in Italy without the benefit of the BNL branch network," the 54-year-old executive tells Institutional Investor in an interview in his wood-paneled Paris office.
The takeover is the latest in a series of cross-border bank mergers in Europe, following Santander's E13.8 billion purchase of Abbey National in July 2004, UniCredit's E18.4 billion acquisition of German rival HVB Group in June 2005 and ABN Amro's successful E5.7 billion bid for Italy's Banca Antonveneta in September. Those deals, and the favorable response they have received from investors, suggest that European banking consolidation has entered a new, more active phase. Since the BNL deal was announced on February 3, BNP Paribas' shares have risen 6 percent, trading at E77.65 late last month.
"The rationale to be a multimarket bank in Western Europe is increasing, as the recent deals demonstrate," acknowledges Prot. He cautions, however, that would-be acquirers still face barriers. "The consolidation process will take years and is likely to move in fits and starts because of difficulties when it comes to gaining control of banks, and because there is still limited harmonization in retail banking between countries."
Further consolidation is likely. Italy is, after Germany, Europe's most fragmented banking market after Germany, with the top five players controlling only 35 percent of the country's total assets. There are rumors that Banca Intesa, Italy's second-largest bank, with a market cap of E29.3 billion, will seek to acquire Banca Monte dei Paschi di Siena, the fifth-largest bank (market cap E10.1 billion), or No. 4 Capitalia (E14.8 billion).
Prot is determined to stir up the market now that he has his foot in the door. "In 18 months or so, when we have fully integrated BNL, I think it will have the potential to act as a consolidator within Italy," he says. "It certainly will be a lot easier to do that from inside the market than from the outside."
Spain's Grupo BBVA put BNL in play in March 2005 when it made an unsolicited E8.3 billion takeover offer. That bid, followed by ABN Amro's offer for Antonveneta, represented a challenge to the status quo: The Bank of Italy had attempted to orchestrate consolidation as an all-Italian affair.
Both foreign banks appeared frustrated until Fazio was forced to resign from the central bank in December. Fazio had allegedly favored a bid from Banca Popolare Italiana over ABN Amro's offer, but a criminal investigation into possible stock manipulation by BPI forced the bank to abandon its offer and provoked intense criticism of the governor's actions.
Fazio's successor as governor, former Goldman Sachs banker Mario Draghi, did nothing to impede ABN Amro's offer, which is due to close at the end of March. Bankers and analysts say the new central bank boss will judge takeover offers on the basis of the acquirer's financial soundness rather than its nationality.
That sea change in attitude was not in itself sufficient to entice BNP Paribas. "The situation in Italy changed very rapidly, but we still faced the hurdle of having no minority stake in an existing national player," explains Prot.
Everything changed, however, when Pierluigi Stefanini, chairman of Bologna-based insurer Unipol Assicurazioni, contacted Prot on January 20 to see if he was interested in acquiring BNL. Stefanini's predecessor Giovanni Consorte, who resigned on January 9 after Italian prosecutors reportedly placed him under investigation for stock manipulation, had thwarted BBVA's offer for BNL last year by putting together a group of 13 shareholders that obtained 48 percent of the bank. Having passed a 30 percent threshold, the group was obliged to bid for the entire bank. But on January 10, Draghi's Bank of Italy rejected Unipol's E5 billion, debt-financed offer, ruling that it would have left the group too thinly capitalized.
Stefanini first approached BBVA to see if the Spanish bank would increase its offer for BNL, according to people close to the insurance company. When BBVA refused, the executive turned to Prot and got a favorable response. "We could pay more than BBVA because our level of potential synergies was higher than theirs as a result of our preexisting presence in Italy," the French banker notes. BBVA, which has declared its intention to sell its 14.75 percent stake in BNL to its French rival, stands to walk away with a E600 million profit.
BNP Paribas' solid Italian franchises in such areas as consumer finance, asset management and leasing earned E750 million in net income last year -- nearly 13 percent of the group's profit. By combining those businesses with BNL, the bank expects to generate an additional E150 million a year in revenues and cut E250 million a year in costs. "We knew a takeover of a major retail franchise in Italy would be value-creating," asserts Prot.
The French bank will keep the BNL name and its Rome headquarters. BNL chairman Luigi Abete, whose restructuring efforts have slashed the bank's bad-debt ratio and helped produce a profit of E518 million in 2005, compared with a year-earlier loss of E34 million, has agreed to remain for three years. BNL's 11.8 percent return on equity in the first nine months of 2005 was well below the European banking average of 16.9 percent, but Prot is betting on further progress. "Abete's presence and that of the bank's senior management will be key to further improvements," he says.
