In journalist’s lore, the only way to know when a deal was done at investment bank Mediobanca 20 years ago was to stand outside and wait for the sound of champagne corks popping. Such corporate colour has been consigned to history thanks to the eurozone crisis.
The once very powerful and secretive Milanese bank, which presided over a network of cross-shareholdings making it the top table for Italy’s most influential bankers, businessmen and financiers, has been radically transformed.
When the eurozone crisis saw the bank’s shares value fall 90 per cent it discovered risk was not outside but inside: the cross-holdings were the veins through which contagion could spread.
The response of Mediobanca under Alberto Nagel, its chief executive, has made it a case study of how to change the risk profile of a business model when the market demands.
In 2012 the price of its shares fell to €2.5 each. Having shed many cross-shareholdings and diversified from being an all-Italian investment bank to a pan-European boutique, Mediobanca’s stock now stands at €8.4 per share.
“In recent years both the regulatory and market settings have changed profoundly,” says Mr Nagel, who started his career at Mediobanca more than 20 years ago. He is now as likely to be found at its recently expanded 100-person strong base in London’s Grosvenor Place as in its Milan’s headquarters.
Mr Nagel has also hired senior bankers to expand its presence in Madrid and Paris. He argues that today, being “a specialised bank allows you to have higher and more stable profitability and better proximity to customers than universal banks. Mediobanca’s strategy fits this context of increasing specialisation.”
Its latest quarterly results support the changes. It reported an 8 per cent jump in revenues to €489m and operating profits of €282m helped by gains on equity disposals. Its fully phased common equity tier 1 ratio — a bank’s core equity capital compared with its total risk-weighted assets — was 12.7 per cent.
UBS analyst Matteo Ramenghi says the profits were well above expectations. He says the bank’s management has taken “a proactive stance, managing the balance sheet in the new interest rate environment by reducing excess liquidity and bond investments to leave room for loans expansion, and therefore improving asset spreads”.
Marco Sallustio, analyst at ICBPI, believes “ongoing recapitalisation of EU banks, the pick of M&A in the banking, telecom and utilities sector, and the flow of new IPOs are expected to provide a decisive contribution to the group’s earnings in 2015”.
Yet building a pan-European boutique investment bank to compete with the likes of Lazard and Rothschild as it seeks to be “more bank and less holding company”, in Mr Nagel’s words, has not been without pain.
From 2008 to 2013, Mediobanca made €1bn in writedowns. Having raised €3.3bn from selling holdings in companies such as Fiat and Ferrari, in June 2013 Mr Nagel announced plans to sell another €1.6bn in stakes, a move that would effectively cut its links to many Italian companies. He and his team have since realised €840m with sales of shares in Gemina, Intesa Sanpaolo and others.
In terms of historic significance and value, its bigger share sales will come later this year, when Mr Nagel has said he will exit RCS Mediagroup, which owns newspaper Corriere della Sera — a traditional hub of business, financial and political power — and Telco, the holding company of Telecom Italia, by June. Both RCS and Telco had become liabilities with their fortunes tied to weakening consumer demand.
Mr Nagel also plans to sell down 3 per cent of its stake in Generali to take it to 10 per cent to raise funds, possibly to buy a banking business in the UK or Italy. The Generali stake is Mediobanca’s most precious — and controversial — asset: about 70 per cent of its quarterly profits came from the insurance multinational. Selling three per cent now would give Mr Nagel nearly €900m to play with.
Analysts say the jury is still out on the destination of Mediobanca’s transition. They speculate it may ultimately become a takeover target. But, in the wreckage of the eurozone crisis that destroyed many of Italy’s old certainties, Mediobanca will fight another day.
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