Investment bank Mediobanca's last business plan, completed in June, was marked by the historic decision to sell most of its investment portfolio of Italian blue-chip stocks, with the bank putting an end to the era of its role as the behind-the-scenes string-puller of the nation’s financial world.
The new plan, presented yesterday by Chief Executive Alberto Nagel, definitely brings to an end the bank’s legacy of being split between investment banking and stake-holding.
The new plan introduces three complementary business divisions --corporate and investment banking, consumer banking and wealth management -- of the same importance. In the new plan, income from stake holdings will halve by the end of 2019 and their role will be redefined to support the development of the other areas.
According to Nagel, the goal is to finally achieve a “stronger, more solid and less risky bank”, with the goal to eliminate the discount on the book value which, although less than in other banks, weighs on Mediobanca's stock market valuation.
In the current difficult scenario, macroeconomic trends, technology and regulation are revolutionizing the banking sector. Change or die, people say, but Mediobanca believes that even now there are opportunities to seize for solid banks.
“We are the only growth bank, instead of a restructuring bank,” Nagel told analysts.
The group's strategic re-positioning aims to increase revenue generation, with the operating result seen rising from €0.7 billion to €1 billion in 2019; to increase capital generation (€1 billion of net assets in three years) and a Common Equity Tier 1 ratio which, without acquisitions, would rise from 12% to 14%; complete the transformation into a highly diversified banking group, focused on highly-remunerative activities, with the contribution to the operating result of banking activities expected to increase from 60% to 80%.
Today, 37% comes from stake-holdings (mostly Generali), 36% from the retail activity, 20% from corporate and investment banking and 7% from wealth management. At the end of the plan's period, the contribution from stake-holdings will halve to nearly 20%, the consumer and corporate businesses will contribute equally (33% the former, 32% the latter), and wealth management will double to 15%.
Yesterday, Mediobanca said it bought for €141 million the 50% stake it did not already own in Banca Esperia from Mediolanum, taking full control in the bank that manages the portfolios of top clients. But growth could accelerate through further acquisitions.
In the lending sector, where the ROAC is currently at 16%, the bank expects an improvement to 20%, betting on the strength of consumer lender Compass, whose distribution coverage is expected to be completed.
As for investment banking, the return is expected to rise from 9% to 13% (far from the 16%-17% past peak), with a deal flow expected to be boosted by the consolidation of the financial, infrastructure, energy, luxury and food sectors; acquisitions in Italy by foreign investors in the M&A; developments in the area of non-performing loans; and in the capital market by the generational change in the world of mid-sized businesses.
The stakeholdings -- that today offer the best remuneration with 17% of capital -- will fall to 12% at the end of the period, due to the new rules for the investment in Generali (it could halve it by 2018, before integrally deducting it from early 2019).
The sale of a 3% stake in Generali (valued at €800-900 million) and other investments is expected to generate €1.3 billion, which could be largely used (up to €1 billion) to fund external growth if more remunerative opportunities were to materialize or to increase the payout (currently at 40%) by distributing higher dividends to shareholders.
The industrial plan has been accompanied by a reorganization of the corporate and investment banking area with the appointment of Francisco Bachiller as new co-CEO, together with Stefano Marsaglia, based in London; and with the hiring of a country manager for Italy, Francesco Canzonieri, an brand new role for the company.
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