Can Rome still rely on Generali and UniCredit in a crisis if they go ‘full European’?
ROME — Italy’s government fears merger deals by some of the country’s biggest financial groups will sap its ability to summon patriotic investment in a crisis.
Milan-based UniCredit, the country’s second-largest bank and Trieste-based Generali, its biggest insurer, are both eyeing cross-border alliances that threaten to dilute their Italianness. To some policymakers, haunted by memories of the 2011-2012 eurozone crisis and faced with four years of economic mayhem as Donald Trump returns to the White House, that’s a disconcerting prospect.
With a national debt of over €3 trillion or 137 percent of gross domestic product, Italy’s government is acutely sensitive to the need for a solid and reliable investor base.
And foreign investors, who are typically more fickle, now hold over 30 percent of Rome’s outstanding debt, according to Bank of Italy data. As such, Rome now has a group of investors that it feels it has less influence over. Morningstar analyst Javier Rouillet said it’s “reasonable” to want a more “diversified” investor base in that context.
Politicians have a longstanding, if mistaken, belief that local firms are more trustworthy because they buy bonds for “patriotic” reasons, said two people familiar with the government’s thinking. It’s a belief that’s wilfully exploited by local lobbyists pushing for softer regulation, said one of the people, even though the reality is that Italian banks and insurers — like their foreign competitors — buy Italian bonds because of the “wonderful risk/return profile — not to please the government.”
“Having our debt in domestic hands is a goal in order to keep interest paid in the Italian economy,” said one lawmaker familiar with the government’s thinking, “Not that [financial institutions] do what the government asks, but there has always been a clear domestic bias in Italian-owned investment firms.”
The Ministry of Economy and Finance will certainly need all the help it can get this year. Its current plan is to sell up to €350 billion in bonds — nearly €1 billion a day — to fund the 2025 budget and to refinance all the old bonds that are maturing. According to Barclays analysts, that includes €73 billion from the European Central Bank, which — crucially — is now reducing its holdings after a decade of asset purchases. The Eurosystem, through the Bank of Italy, held over a quarter of the government’s bonds at the end of September.
This comes as the mood in European debt markets begins to darken. Across the world, borrowing costs are being dragged higher by signs that the U.S. economy is still going strong and doesn’t need any more interest rate cuts from the Federal Reserve. And that’s before considering the possible inflationary impact of President-elect Trump’s second term.
In the last six weeks, Italy’s borrowing costs have risen by 0.6 percentage points. If they were to stay at the current level of over 3.8 percent, then its debt burden would grow faster than the economy servicing it, AXA Investment Management chief economist Gilles Moëc wrote in a note to clients on Monday.
A finance ministry spokeswoman downplayed any sense of concern. She pointed to the strong relative performance of Italian bonds in recent months, and to the fact that they still offer a sizable premium over their eurozone peers.
Italy vs France vs Germany
Regarding the mergers specifically, policymakers’ chief concern is a €2 trillion tie-up between the asset management arms of Generali and Paris-based conglomerate Natixis, according to two people familiar with the matter. Talks have been ongoing for some months now. The worry, at least among some officials, is that Generali, one of the largest historic holders of Italian sovereign bonds, might eventually “lose its commitment” to Italian debt in future, as part of a broader, French-dominated group. That could make a bad situation worse for Italy if and when the next panic arises, said one of the people.
The person added the move has prompted Rome to consider whether it can use executive screening tools to condition the deal.
Similar concerns swirl around a controversial move by UniCredit to court Commerzbank, Germany’s second-biggest bank. Only, those concerns aren’t limited to Rome: the move has also provoked outcry in Berlin.
A report in October by ratings agency Moody’ssuggested that increasing the German share of UniCredit’s balance sheet would “loosen the intrinsic correlation between UniCredit’s creditworthiness and that of the Government of Italy.” That would likely reduce UniCredit’s borrowing costs in the market.
The flip side of that, as Commerzbank chairman and former German central bank chief Jens Weidmann said in an interview published on Monday, is that it would expose Commerzbank’s customers in Germany to potential instability in Italy. Weidmann told Handelsblatt a takeover would represent “mutualizing sovereign debt through the back door.”
According to company filings, UniCredit holds around €38 billion in Italian government debt, while Generali holds over €30 billion. Both declined to comment.
One-way traffic
Italian misgivings over the potential tie-ups have other reasons, too, notably because they always seem to end up with the non-Italian partner dominant. To Italian officials, the defense of Commerzbank has appeared a particularly flagrant piece of hypocrisy, given the recent takeover by Germany’s Lufthansa of Italian airline ITA.
The Generali deal, meanwhile, has revived age-old anxiety about perceived French economic imperialism. Italy and France have a troubled track-record when it comes to transalpine mergers. Most have gone in one direction, said Alessandro Aresu, a geopolitical analyst and adviser to former prime minister Mario Draghi on investment screening. In recent years, Crédit Agricole has snapped up several local banks, mainly in northern Italy, while BNP Paribas has owned Banca Nazionale del Lavoro, the country’s sixth-largest bank, since 2008. Generali’s CEO, Philippe Donnet, is himself a bona fide Frenchman.
And while French companies have taken over Italian ones in sectors from luxury to media, there have been few big deals going the other way. One such deal, a proposed merger between shipbuilders Fincantieri and France’s Chantiers de l’Atlantique, ultimately collapsed because of French opposition.
Meloni in particular has criticized deals she portrays as French takeovers of Italian crown jewels, including the one that created automotive group Stellantis — a company that is still in her crosshairs.
Ultimately, it’s unsurprising that Rome has an “atavistic fear of Generali going into the French sphere,” said Aresu. “Italy’s trust will not be restored until there are significant deals in which the Italian actor is the one acquiring.”
