Italian lenders should revamp their investment banking units to create a larger business able to compete on a European scale, according to AlixPartners LLP, a business consulting and financial advisory firm.
A national champion would also be able to expand in higher-growth regions such as Latin America and Africa, AlixPartners said in a report. Creating a bigger, stand-alone securities firm by combining units, for example, may become a necessity if regulators move to separate investment banking from retail deposit-taking, according to New York-based AlixPartners.
Regulators’ demands for greater capital to create buffers for potential losses and contracting economies are weighing on European banks’ ability to compete against Wall Street firms. At the same time, the European Union is considering forcing lenders to split their commercial business from their riskier activities.
Italy’s largest securities businesses -- UniCredit SpA, Intesa Sanpaolo SpA’s Banca IMI and Mediobanca SpA -- aren’t among the top 10 stock sale underwriters in Europe this year and rank no higher than 31st among merger advisers on deals involving companies in the region, data compiled by Bloomberg show.
“Italy doesn’t have an investment bank that is capable of accompanying companies internationally,” Claudio Scardovi, a managing director of AlixPartners and co-author of the report, said in a phone interview. “For Banca IMI, regulatory reform is an opportunity to add to the business model, make it more independent and international,” he said.
Italian banks, plagued by souring loans, also would benefit from the creation of a bad bank that would purchase deteriorating credits, AlixPartners said in the report. By selling non-performing loans, lenders would also boost their transparency, which would in turn assist them in raising funds from foreign investors, according to AlixPartners.
Bad loans of companies and households rose to a record 131 billion euros ($171 billion) in March, according to the country’s banking association. Still, Giovanni Sabatini, the group’s director general, ruled out the need for a bad bank in a May 30 interview.
Lenders in the country are cutting costs and reducing risks to boost finances, as Italy’s longest recession in two decades is hurting profit and stricter capital rules are forcing them to strengthen capital.
Italian banks should merge to improve their capital levels, according to Scardovi. Smaller and weaker banks should be incorporated in stable and more competitive lenders, helping to cut costs, boost investments and improve their ability to recapitalize. Scardovi said the number of Italian banks could be reduced by more than half to as few as 300.