Italy\u2019s UniCredit is plotting to merge with French rival Soci\u00e9t\u00e9 G\u00e9n\u00e9rale in a bold move that would see two of Europe\u2019s big banks join forces, leading the way for an expected round of banking mergers on the continent.<\/p>\n
Jean-Pierre Mustier, Unicredit\u2019s French chief executive, has been pioneering the idea for several months, according to people close to the situation. They said no formal approach has been made but SocGen directors have also been studying the possibility of a combination.<\/p>\n
Senior figures on both sides stressed discussions were at an early stage and Italy\u2019s volatile political situation had pushed back the timetable for a deal from the original plan of 18 months.<\/p>\n
Mr Mustier considers SocGen, whose investment bank he once ran, an ideal partner for the Italian lender, buttressing its investment banking and eastern European operations. For SocGen, one of the main benefits would be gaining a leading position in Italy and Germany, both in retail and corporate banking.<\/p>\n
But any UniCredit-SocGen deal would be fraught with difficulty. Aside from Italy\u2019s political turbulence \u2014 and hostility to foreigners owning or running Italian businesses \u2014 regulators may be unnerved by the combination of two lenders already deemed systemically important.<\/p>\n
A merger between the two has been considered by SocGen on several occasions over the past 15 years and in recent months by senior executives. However, on Sunday the bank denied \u201cany board discussion regarding a potential merger with UniCredit\u201d.<\/p>\n
UniCredit declined to comment.<\/p>\n
Europe\u2019s banks are under increasing pressure to bulk up, due to their relative decline compared with booming US rivals. The Financial Times reported last month that members of Barclays\u2019 board had discussed a plan to combine with UK rival Standard Chartered. The European Central Bank has signalled it would like to see cross-border deals as part of efforts to champion the pan-eurozone banking union.<\/p>\n
Mr Mustier has been outspoken on the topic. At the IIF Brussels conference last month he said the bloc needed bigger, pan-European banks to fund credit demand and equity financing.<\/p>\n
According to senior financiers, Mr Mustier\u2019s focus on SocGen was evident as far back as the Italian bank\u2019s vital \u20ac14bn capital increase last year. During the fundraising he told staff he wanted Unicredit\u2019s market capitalisation to surpass SocGen\u2019s, according to people directly involved in the talks. At Friday\u2019s close, UniCredit was valued at nearly \u20ac33bn compared with SocGen\u2019s \u20ac32bn. The capital increase will have quashed opposition to any cross-border deals within the Italian banking industry.<\/p>\n
Neither group would be ready to proceed with a deal for at least a year, bankers said. Mr Mustier\u2019s repair work on UniCredit, which has been hit hard by billions of euros of non-performing loans, is expected to last at least until mid-2019.<\/p>\n
Analysts say SocGen is not in a position to do any deals, either. It has yet to reach an agreement with investigating authorities over its involvement in the Libor rate-rigging scandal and two other probes. Its share price has slipped 13 per cent so far this year as investors have been spooked by the pending fines, weak trading performance at its investment bank and the Libor-related departure of deputy chief executive Didier Valet, widely seen as a successor to CEO Fr\u00e9d\u00e9ric Oud\u00e9a. Mr Oud\u00e9a has recently been given another term at the top of the bank, pending shareholder approval next May.<\/p>\n
For Mr Mustier any deal would be a \u201cresurrection play\u201d, friends said, potentially installing him as CEO of the combined group a decade after he might have expected to get the top job at SocGen. The investment banker quit the French bank after a court criticised him for failing to spot the errors of rogue trader J\u00e9r\u00f4me Kerviel. Mr Mustier, who is credited with having turned round Unicredit\u2019s fortunes, has seen the bank\u2019s share price rise 27 per cent since his arrival in the summer of 2016, notwithstanding the giant capital raising and recent political turmoil.<\/p>\n
He has always viewed a cross-border deal as essential to the bank\u2019s future strategy. Last autumn he considered a bid for Commerzbank, according to people briefed on the issue, but was rebuffed by the German bank.<\/p>\n