Mediobanca suitor MPS says investors starting to understand deal

By Valentina Za

MILAN (Reuters) -Monte dei Paschi CEO Luigi Lovaglio said initial meetings with investors to explain the reasons behind its surprise bid for Mediobanca had helped address some of the markets' doubts about the deal.

State-backed MPS last month shocked Italy's financial world by launching a hostile all-share bid for Mediobanca, seven-and-a-half years after a state bailout that drew a line under a decade-long crisis.

With few cost cuts to pursue by combining two businesses that have little overlap, Lovaglio has bet on 1.2 billion euros in tax benefits that MPS can release if it secures 50% of the rival plus one share.

Such benefits added 506 million euros to MPS' 2024 income.

Planning to lift the payout ratio to 100% in the tie-up, Lovaglio has said it would use that money to reward Mediobanca investors.

"Once we start discussing and explaining [to investors], we end the meeting with a positive feeling that the rationale has been understood and in several cases shared," he told analysts.

Lovaglio, who recently met investors in London and will return there in the coming weeks, said the deal required more explaining.

MPS on Thursday posted a smaller than expected 5% quarterly drop in net income on higher loan loss provisions and lower trading income.

Net profit was 385 million euros ($400 million), sharply down from a year earlier when it was boosted by a release of funds put aside for legal risks worth nearly 470 million euros.

Favourable court rulings have been a boon for MPS, which has been dogged by lawsuits after years of mismanagement.

Net fees, the focus for banks as they try to counter the negative impact of lower rates on their lending business, grew by 5% quarter-on-quarter, more than offsetting the drop in net interest margin.

In the full year, net profit totalled 1.95 billion euros, beating a company-provided consensus forecast of 1.82 billion.

Mediobanca has no branch network and makes money from consumer credit, where it partners with MPS, an investment in insurer Generali, and its wealth management and corporate investment banking businesses.

MPS said it had been able to grow its consumer loans by 21% in 2024, and wealth management inflows by 40%.

MPS' bid for Mediobanca came after the latest stake sale by the Treasury - which now owns only 11.7% of MPS - brought onboard as MPS shareholders two leading Mediobanca investors.

($1 = 0.9626 euros)

(Reporting by Valentina Za, editing by Alvise Armellini and Bernadette Baum)