Proposed mergers between four of Italy's biggest banks will trigger other in-market deals across Europe and set the stage for large cross- border transactions, banking analysts said Monday.
Germany's Commerzbank, for example, could soon strike a deal with a domestic banking partner like Bayerische HypoVereinsBank in a quest for scale, analysts said.
In addition, Spain's proposed Banco Santander BCH Group is expected to look to combine with Italy's San Paolo/IMI after the Italian bank completes its proposed merger with Banca di Roma.
"The story of cross-border mergers is going to be the next step," predicted Ugo Pastori, a banking analyst at Robert Fleming Securities in London.
On Sunday, UniCredito Italiano SpA offered around $16.5 billion in stock for Banca Commerciale Itailiana SpA, Italy's fourth-largest bank. On the same day, San Paolo announced a nearly $10 billion offer for Banca di Roma, Italy's fifth-largest bank.
The proposed Italian mergers are the latest big banking deals to sweep across Europe since the start of the year. In January, Banco Santander announced a merger with Banco Central Hispanoamericano.
Earlier this month, France's Banque Nationale de Paris SA launched a $39 billion stock bid for Societe Generale SA and Paribas SA. The deal would create the world's biggest bank with more than $1 trillion of assets.
Both proposed mergers in Italy have the blessing of Italian regulators and would create strong domestic institutions with enormously improved profitability and large market capitalizations.
"You're looking at a 75% plus chance that the mergers will go through," observed Derek Chambers, a banking analyst with HSBC Securities in London. "These mergers have clear support from the Italian authorities and regulators."
San Paolo/IMI said a merger with Banca di Roma would boost return on equity to 15% by 2001, from around 10% today. It would create an institution with assets of $314 billion; a market capitalization of around $33 billion; and more than 3,000 branches.
UniCredito said a merger with Banca Commerciale Italiana would raise the two banks' combined return on equity to 23.5% in two years, from around 14% today. The post-merger bank would have assets of $280 billion; a market capitalization of $42 billion; and 4,200 branches.
Its market cap would put the post-merger UniCredito in the same league as Deutsche Bank and Barclays PLC.
The two proposed mergers, analysts said, will turn the tables on who buys whom in Europe. Italian banks, long regarded as possible takeover targets by other European institutions, could easily use their much stronger capital positions to buy up other European banks, they said.
"It's highly like that if the Unicredito project goes forward they will see themselves as a bigger force not only in Italy but elsewhere in Europe," Mr. Chambers said.
Analysts added that the two deals would make it much harder for other European banks, like Amsterdam-based ABN Amro NV, to carve out market share in Italy. ABN Amro announced an agreement to acquire 8% in Banca di Roma only a couple of weeks ago.