Mediobanca to Absorb Barclays Italian Branches in Revamp

  • Barclays to pay Mediobanca $259 million to take over branches
  • CheBanca! unit will beat most of the targets set in plan: CEO

Mediobanca SpA agreed to absorb Barclays Plc’s consumer-banking operations in Italy as part of its plan to refocus around retail and investment banking.

Barclays, which will record a loss on the disposal, will pay Mediobanca 237 million euros ($259 million) in the transaction to offset the unit’s liabilities, the companies said Thursday. Mediobanca’s CheBanca! unit will gain 89 branches and boost its client base by 40 percent to 770,000.

“This is a transaction consistent with the bank’s plan to allocate capital in business lines that can generate revenue with low capital absorption,” said Gian Luca Sichel, chief executive officer at CheBanca!, in a phone interview. “We reached a favorable agreement because of Barclays’s commitment to exit the country.”

Mediobanca CEO Alberto Nagel is breaking with the strategy of previous decades that saw Italy’s biggest investment bank use stakes in companies to help dominate local dealmaking. After some investments soured following the 2008 financial crisis, Nagel sought to dispose of peripheral assets, focus on corporate and investment banking and expand in retail and asset management.

“This is another positive step in the bank’s transformation from a holding company to an investment and retail bank,” Wolfram Mrowetz, chairman of Alisei Sim, a Milan brokerage, said by phone. “While in the investment bank, Mediobanca has long and strong experience, retail is a relatively new business. The main challenge is making CheBanca! a successful brand.”

Beating Targets

CheBanca! will beat most of the targets set in its three-year plan through June 2016, excluding the Barclays acquisition, which is expected to be completed by then, Sichel said. The unit will report a profit, surpassing its target of breaking even, and will exceed the 4 billion euros targeted for assets under management, he said. Deposits will be in line with the 10 billion-euro goal, he added.

CheBanca! will focus on organic growth in the next 12 months, Sichel said, “even if it will continue to look at opportunities that can arise.” He also expects more of the division’s earnings to come from commission fees. Mediobanca and CheBanca! expect to announce a new plan for their businesses as early as May.

Mediobanca History

CheBanca!’s staff numbers will rise 60 percent to about 1,500. The transaction will give the bank an additional 1 billion euros in risk-weighted assets and absorb about 20 basis points of capital, which will be recovered from earnings growth. It will also add 50,000 wealthier customers.

“The rationalization process may lead to the closure of some branches over the next 12 months, in particular in Rome and Milan, where there is some duplication,” Sichel said. The costs of integrating and rebranding the branches will be covered by Barclays’s payment, he said.

Mediobanca, founded in 1946 by Enrico Cuccia and Raffaele Mattioli, sat at the center of Italian finance for more than 50 years, using a web of holdings in the country’s biggest companies to attract clients.

The stock has almost doubled since the new strategy was announced in June 2013. Mediobanca strengthened its investment banking presence abroad and boosted the consumer-credit business and wealth management at CheBanca! In its quarter ended Sept. 30. retail and consumer banking revenue represented more than half of the bank’s total income.

‘Flag Planting’

“We view the deal positively, which is a transforming deal for Che Banca! and in line with the group’s growth strategy in the attractive Italian wealth management business,” Anna Maria Benassi, an analyst at Kepler Cheuvreux with a hold recommendation on the stock, wrote in a report Thursday.

Mediobanca has gained 34 percent in in Milan trading this year, compared with a 1.5 percent decline for the Bloomberg Europe Banks and Financial Services Index. Its shares slipped 0.6 percent to 9.04 euros Thursday.

At Barclays, CEO Jes Staley is refocusing on the lender’s most profitable businesses in the U.K. and U.S. and selling consumer operations in continental Europe designated as non-core. Britain’s second-largest bank sold its operations in Portugal to Spain’s Bankinter SA for about 100 million euros in September, after CaixaBank SA bought Barclays’s consumer, wealth and investment management and corporate banking operations in Spain for about 800 million euros last year.

“The transaction announced today signals the welcome abandonment of Barclays’s ill-fated foray into Italian retail banking,” said Ian Gordon, an analyst at Investec Plc in London. The deal is a step toward “unwinding the disastrous ‘flag planting’ strategy adopted by Barclays’ retail/commercial businesses a decade ago.”

Continued Presence

Barclays said it will continue to be active in corporate and investment banking in Italy. The transaction will result in a loss after tax of about 200 million pounds ($302 million), which will be booked in the fourth quarter of 2015. The bank said its risk-weighted assets will fall by about 800 million pounds.

As part of the deal, Mediobanca also bought 2.9 billion euros of residential mortgages. That still leaves Barclays saddled with about 10 billion pounds of Italian home loans it wants to sell from its non-core unit, according to Investec. The firm had about 13.5 billion pounds of such assets at the end of 2014.

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