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The author is former global head of Bank of America, and is currently the managing director of experts at Seda.
Capital markets can expose machines of political power. The Italian government’s sale of stake in Monte dei Paschi di Siena in November raised around 1.1 billion euros, indicating that while the European government wants to cut its holdings in major banks, it does not want to give up control.
The Financial Times reports that the Commission is investigating claims (solidly denied by lead manager Banca Akros) that major institutional investors, including Unicredit, BlackRock and Norway’s sovereign wealth fund Norges Norges Bank Investment Management, have frozen from offering MPS. When they tried to issue the order, they were allegedly informed that the book had already been closed. Whatever the truth, the entire stock was allocated to four Italian investors. Although Italian investors are not acting in unison, they are linked to the government’s vision of building a “third pillar” in domestic banks along with Unik Reddit and Intesa Sampaolo.
Initially, the transaction followed the usual procedures. Italy’s Ministry of Economic and Finance had invited banks to bid to sell 7% of their shares. Some banks sense broader strategic interest – they responded with aggressive suggestions and offered to place stocks at a discount of less than 1% on the market, unusually tough on transactions of this size.
However, the government has appointed Bankaa Cross, a relatively small Italian bank subsidiary of Banco BPM, as its sole bookrunner. That was my first surprise. Previous placements of lawmakers included multiple, often international lead banks. Across is not a bank that I know of regularly engaged in by international investors. One major global fund manager told me that his institution was not established at the time to trade with Across.
The second surprise was carried out. Instead of distributing stocks widely to institutional investors, Akros offered the full offering in four Italian groups. He owns the parent Banco BPM, Anima Holding (22% owned by BPM, currently nearly 90% owned), Construction Tycoon Francesco Gaetano Caltagirone, and Delfin from Delfin. This offering is priced at more than twice the size, 7-15% and 5% premium on the market. The next morning, the stock surged over 12% amid speculation of strategic interest, suggesting that while Rome has secured a good price, some value may still remain on the table.
I have worked on hundreds of European stock offerings for over 25 years, and transactions like this follow the playbook. Reed Bank notifies the market via the startups via newswire, provides updated pricing guidance, and warns in advance that investors’ time (usually over 30 minutes) will correct the order and close the order. The probe should follow these execution steps to determine why if not.
UnicRedit reportedly offered to buy 10% of the MP. This is an anchor order that is likely to include strategic premiums. Unlike typical fund managers like BlackRock and NBIM, UnicRedit’s reported interest could have shifted both the pricing and strategic basis for the transaction if it had been communicated to Banca Akros. Banka Across strongly denied receiving such an order.
The placement results left a sharply narrowed investor base. In a typical transaction, it kills competitive tensions and pushes prices down. However, this was not a typical transaction. Prices for blocks at premium are rare. It is still rare to do so without the support of global investors.
Banca Akros says the placement was done appropriately and transparently in accordance with the rules and practices governing such operations. However, there are times when I feel uneasy about Bookrunner allocating so many shares to his parents. Governments typically use multiple independent lead banks for privatization to avoid perceptions of conflicts of interest. Italy did so in its previous two lawmakers’ share sales, but did not.
When the European government drops off its shares in bank stock, they are not simply trying to maximize sales revenue. They also manage financial stability, support national champions, form strategic sectors, and often override free market principles. Parliamentary lawmakers deal with industrial policy smacks that disguise capital market activities.
Italy got what it wanted: premium selling prices, adjusted buyers, and no unwelcome intruders. But the way it does so shows that some privatizations are more private than others.
