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MILAN (Reuters) – Shares in mid-sized Italian banks Banco BPM and BPER Banca fell sharply on Friday, hit by reduced appeal to potential suitors after Italy proposed to cap tax incentives for mergers.
Banco BPM shares fell 6% and BPER’s 5.4%, underperforming Italy’s banking sector index which was down 0.6% in early afternoon trade due to falling Italian government bond prices,
The two banks have been at the centre of M&A speculation after another mid-tier player, UBI, was snapped up by heavyweight Intesa Sanpaolo (OTC:ISNPY) last year.
The M&A allure was further boosted by tax incentives for mergers Italy has introduced to ease a sale of state-owned Monte dei Paschi.
A draft of next year’s budget seen by Reuters on Thursday showed Rome planned to extend the current incentives by six months to mid-2022 but would introduce a 500 million euro ceiling for the potential benefit.
Morgan Stanley (NYSE:MS) analysts calculated that the proposed changes reduced by eight times the capital boost in a potential tie-up between UniCredit and Banco BPM.
“A hypothetical deal between UniCredit and Banco BPM would see the biggest reduction in … benefits among all potential combinations in Italy,” they wrote.
Seen as the perfect geographical fit for UniCredit thanks to its roots in wealthy Lombardy, Banco BPM has seen its shares gain 51% so far this year, against the sector’s 35% rise.
After UniCredit on Sunday walked away from talks with the government to rescue Monte dei Paschi, investors’ attention had refocused on Banco BPM as a possible partner for UniCredit.
But UniCredit CEO Andrea Orcel on Thursday said he did not see the tax breaks as a big M&A incentive due to the fee banks pay under the scheme to convert deferred tax assets (DTAs) stemming from past losses into tax credits.
A source close to the matter had said 80% of the DTAs UniCredit could have used under a tie-up with Banco BPM were its own.
Mediobanca (OTC:MDIBY) Securities on Friday cut its recommendation on both Banco BPM and BPER Banca to neutral.
“The changes in the budget law would not be favourable for Banco BPM and BPER. With respect to Banco BPM we reckon it could lose its speculative appeal as potential takeover target of UniCredit … and would see the around 1 billion euro DTA incentive halved in a deal with BPER,” they said.
Banco and BPER have discussed a tie-up in the past and failed to reach an agreement, with BPER now seen more likely to opt for a merger with Popolare di Sondrio after BPER’s top shareholder Unipol bought a stake in Sondrio.
