Who Should Weigh In on Monte Paschi’s Bid for Mediobanca?

The ECB has authorised the share exchange, but many questions around the operation remain

Among the many headlines shaking up the hot summer for Italy’s banks, perhaps the most surprising is that Monte Paschi—long the black sheep of our banking system, rescued several times with billions in taxpayer money, worth almost nothing just over two years ago—is now aiming to take control of Mediobanca, a historic pillar of Italian capitalism and an institution long run according to sound and prudent management.

Is this a case of market madness, a murky affair as some have suggested, or proof that things can change and even the most unlikely rescues can create value? Time will tell.
For now, let us try to answer three key questions for anyone following these developments and concerned about the country’s future.

First: Was the ECB wrong to authorise the share exchange—the first act in this process?
Second: If that decision is not the end of the story, as it certainly is not, who should deliver the final verdict on this operation in light of the Italian interest and the much-cited need to strengthen the “European system”?
Finally—the most difficult question: What are the criteria by which we should assess whether such a combination between two banks is ultimately beneficial?

Let’s begin by stating that, at least so far, the ECB has not erred. It has not authorised a merger or a transfer of control, but merely allowed the market to consider a share swap, the outcome of which will reveal whether shareholders wish to go forward with the project.
The law requires the ECB to ensure the security and soundness of the resulting bank and to preserve the stability of the system, possibly by imposing conditions. The ECB has asked to receive, in due course, all necessary elements to assess the new reality from a prudential perspective. At that stage, it is to be hoped—and expected—that the ECB will act with the required rigour.

But if the role of European supervision is limited, who then should pronounce on the deeper value of this combination, in a broader context?
The answer cannot be “the market” alone. Not only is the market in question not truly free—dominated as it is by a few players able to distort its balance—but crucial information is not available equally to all shareholders.

The primary responsibility falls to national authorities charged with protecting savers—above all, the Treasury and the Bank of Italy—to look beyond the ECB’s prudential remit and assess whether the resulting changes in ownership structure create value. As cited in the latest Bank of Italy Annual Report, this means “providing companies and families with adequate financing in terms of quantity and cost; effective, transparent, and fair savings instruments; high-quality and innovative services consistent with the country’s development needs.”

How does the combination of Monte Paschi and Mediobanca help achieve these goals?
Authorities are not expected to orchestrate a hidden masterplan, but rather to ensure that proper analysis and consideration are factored into the decisions made by those operating in the market.

No one knows these institutions from the inside better than the Bank of Italy, and it has certainly formed an opinion on the matter. It would be desirable for the Bank to express this view—with caution, but also with courage.
As for the Treasury, absolute impartiality between the parties involved is expected. It would be serious indeed if it emerged—as some have suggested and as the European Commission is investigating—that it had favoured particular actors.

Other factors deserve consideration. In this operation, a smaller player—by balance sheet and market capitalisation—would be acquiring a larger one. This is not forbidden, but it is certainly unusual.
Should the deal proceed, the ECB—back in its domain—will need to ensure that the governance structures are not negatively affected by the imbalance between acquirer and target, and to make a careful assessment of the risks involved in integrating two banks whose operating models, geographical reach, and corporate cultures could hardly be more different.

One further element—unfortunately, the last, and one for which no single authority is truly responsible—is the impact on European structures. The European banking system remains fragmented, despite reforms undertaken since the financial crisis.

Mario Draghi, in his report on competitiveness, called for European banking groups capable of competing globally. The European Commission is preparing proposals for a Capital Markets and Savings Union that should also boost the insurance, pension, and asset management sectors at the European level.

How much does the Monte Paschi–Mediobanca integration contribute to all this?
Little or nothing, at least directly. Yet it raises concerns that, reportedly, one indirect aim of those promoting the deal is also to counter the agreement between Generali and Natixis, the French asset management giant—a deal that would create one of the world’s top ten asset managers (nine of which today are American).

All in all, doubts about this “surprising” deal—both from an industrial perspective and in terms of the interests of the system—are many. Let us hope that, as events unfold, substantive factors will emerge and prevail over the folkloristic aspects of a story too often likened to a game of corporate “Risk.” There is still a long road ahead before we know whether this will be the case.

A previous version of this article was published in the daily newspaper Milano Finanza

IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.

Ignazio Angeloni

Ignazio Angeloni

Ignazio Angeloni is a part-time professor at the European University Institute in Florence and a Senior Policy Fellow at the Leibniz Institute for Financial Research SAFE in Frankfurt.

In 2019-2022 he was a Senior Research Fellow in the Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government. From 2014 to 2019, he was a member of the ECB Supervisory Board.

In 2012-2013, Ignazio was Director General for Financial Stability at the ECB; in that capacity, he coordinated the establishment of the new banking supervision at the ECB.

Earlier, he was Director for International Financial Relations at Italy’s Ministry of Finance, Deputy Director General Research at the ECB, and Director of Monetary Research at the Bank of Italy.

Ignazio holds a degree from Bocconi University and a Ph.D. in Economics from the University of Pennsylvania and has published books and articles in leading academic journals.

He is an IEP@BU fellow.

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