The Italian government is mulling the use of special powers to block the potential merger between UniCredit and Banco BPM or impose conditions on the tie-up between the two Italian lenders.
According to media reports, Rome is preparing to start a formal review of UniCredit’s €10.1bn unsolicited offer to buy BPM under the so-called “golden power” rules.
The possibility of reviewing the offer under this legislation was already invoked by Italian Finance Minister Giancarlo Giorgetti when UniCredit unveiled the offer in late November.
At the time, he didn’t hide his — and the majority of the Italian government’s — hostility to the deal.
UniCredit’s offer was “communicated but not agreed with the government”, he told reporters in late November.
One of the reasons for Rome’s unhappiness with the prospective deal seems to be that UniCredit’s move risks scuppering the government’s plans to create a third, solid banking group in Italy — along the lines of Intesa Sanpaolo and UniCredit itself — through a merger between Banco BPM and state-controlled Banca Monte dei Paschi di Siena.
Giorgetti also appeared to warn UniCredit, which has also built a stake in Germany’s Commerzbank drawing Berlin’s opposition, that it may be too complex for the Milan-based bank to pursue both targets at the same time.
Banco BPM rejected UniCredit’s offer saying the price is too low and that the merger could result in thousands of job losses.
How do the ‘golden power’ rules work?
The rules allow Italy’s government to block or set conditions on foreign and domestic corporate takeovers in strategic sectors such as energy, telecoms and banking.
The rules were originally introduced in 2012 to “protect the structure of companies operating in strategic sectors or deemed of national interest”.
They gave powers to the Italian government to intervene and block or set conditions to transactions or company decisions in the defence and national security sectors as well as in sectors deemed of “strategic relevance” such as energy, transport and telecoms, primarily if they involved a non-EU suitor.
The legislation was changed several times since then, widening its scope to more sectors and EU and national buyers, including the banking sector from 2020.
“The rules are very broad and leave the discretion to assess whether a specific operation can damage the national interest,” says Federico Riganti, a professor of financial market regulation at the University of Turin and a fellow at the Bruno Leoni Institute.
This can lead to their application for a variety of reasons, if the government can argue it represents a threat to the country’s national interest or security.
So far, governments have used them to intervene in deals involving primarily technology companies and non-European buyers.
However the decision of the government to set conditions to a merger deal or block it altogether can be appealed before Italy’s administrative courts.
Will the Italian government actually use them?
The broader government’s goal would be to protect Banco BPM’s branches and jobs, according to unnamed sources cited by a Bloomberg report.
BPM’s chief executive Giuseppe Castagna said in a November letter to staff that UniCredit’s bid would entail more than 6,000 job cuts, noting that UniCredit planned to cut costs by more than a third.
For now, Italy’s government has only launched the special process that allows it to use the golden power rules, so it’s hard to tell at this point what the outcome and the reasoning behind the decision to use them could be.
Whether the loss of a large number of jobs resulting from the acquisition falls under the category of national interest or security can be highly debatable, says Riganti.
In addition, even though there always are economies of scale as a result of mergers and, thus, likely job cuts, in the banking sector these always occur via pre-retirements, voluntary departures or other forms of incentives for staff, says Angelo Baglioni, professor of economics and finance at the Catholic University of Milan.
“Mass dismissals never happened in the banking sector. It certainly is a concern, something to keep into account, but there are tools to manage the situation in a fairly soft way,” he says.
“I definitely wouldn’t talk about an issue of national security. It is clearly a problem for the workers who are involved, but it wouldn’t be a problem of national security as in sectors such as transport or telecoms.”
What would their use mean for EU banking?
The banking sector is a highly regulated sector, with multiple authorities capable of weighing in when mergers or acquisitions occur.
The European Central Bank has long advocated for the creation of larger and cross-border banks as a way to make the system more solid and withstand competition from larger foreign banks, such those from the US.
Merger deals are reviewed not only by supervisors but also by antitrust authorities and stock market regulators and, in some cases, also by governments which can have a say over these deals, such as in Spain.
The possibility of being subject to the golden power rules adds a layer of complexity and risk, which won’t help spur the consolidation of the sector for which supervisors are pushing.
Experts also point out these rules are highly discretionary, raising the fear they could be applied for political reasons rather than for the protection of customers or financial stability concerns.