Intesa Rises After Giving Up Bancassurance Tie With Generali

  • The deal would have made limited sense, investor says
  • Bancassurance model ‘hit the rocks’ after showing poor results

Intesa Sanpaolo SpA climbed in Milan trading after abandoning the idea of a merger with insurer Assicurazioni Generali SpA as Chief Executive Officer Carlo Messina concluded there wasn’t sufficient value from the deal.

After studying a possible combination under the bancassurance model, Intesa now plans to concentrate on ways to create and distribute value organically, according to a statement from the Milan-based lender on Friday. Intesa jumped as much as 6.4 percent and Generali dropped by as much as 6.3 percent.

The deal “made limited sense” according to David Herro, the Chicago-based chief investment officer at Harris Associates, which owns about 3.6 percent of Intesa. A large transaction like an Intesa-Generali combination is “fraught with risks. We were pretty happy that they backed away from that,” he said.

A tie up would have reshaped Italy’s finance industry by combining the country’s second-biggest bank with the largest insurer, linking domestically focused Intesa with Generali’s operations in more than 60 countries. Bancassurance, which ties lenders to insurers and focuses on cross-selling their products, was largely dropped as a model after past deals produced poor results.

Intesa was up 5.5 percent at 2.19 euros on Monday, while Generali was 2.8 percent lower at 13.7 euros. Since speculation of a deal started, Intesa has declined 11 percent, while Generali has been almost unchanged.

Investor Skepticism

“Investors were clearly skeptical of such a deal, with Intesa stock underperforming European banks since speculation regarding Generali first emerged,” Aldo Comi, an analyst at Societe Generale SA, wrote in a note Monday. Intesa’s stock should close the gap with the industry now that it has formally ruled out a deal with Generali, he said.

A combination would have seen Messina adding to the bank’s non-life insurance business and expanding abroad through Generali’s foreign network.

A tie up between the companies “would have been a difficult but interesting opportunity to put capital to work and strengthen Intesa’s position in wealth management,” Kepler Cheuvreux analysts wrote in a note, reiterating a buy rating on the shares. “However, we were well aware of the complexity of a business combination of these activities, distribution and regional exposures.”

Testing the Water

Messina had sought support from institutional investors in both companies to build consensus before making a bid, people familiar with the matter have said. The CEO sounded out Intesa investors including BlackRock Inc. in London as part of a roadshow tied to the bank’s earnings announcement and has also been speaking to Generali’s shareholders for the past month, according to the people.

"To me this is a positive indication that management took a look at it and realized that this was not right for them,” Herro said. ‘They have a very good track record. The CEO of Intesa is very sound. They continue to perform.” 

Intesa, which has 370 billion euros ($393 billion) of assets under management, is targeting more lucrative products to help counter low interest rates. Generali, based in the northern port city of Trieste, oversees about 500 billion euros of investment, largely in fixed income, with the remainder in shares, real estate and cash. About 80 percent of the portfolio is dedicated to insurance asset management, with the rest comprising investments on behalf of non-insurance customers.

Dubbed by the Italian press as the “Lion of Trieste” because of its corporate logo, Generali was founded in 1831 and now has 76,000 employees. Like other European insurers, it’s struggling to boost profitability as investment returns fall and competition increases. Philippe Donnet, who became CEO in March, is cutting costs and focusing on cash generation and the retail business to improve returns.

— With assistance by Oliver Suess, Aaron Kirchfeld, Francesca Cinelli, Lukanyo Mnyanda, and Fabio Benedetti Valentini

    Before it's here, it's on the Bloomberg Terminal.