Crédit Agricole SA's acquisition of Credito Valtellinese SpA would strengthen the lender's foothold in Italy and bolster its position in lucrative small and medium-sized enterprise lending and in asset management at a relatively cheap price — if it can get it.
The French bank expanded in Italy, its so-called second home market, through the 2017 acquisition of three small Italian savings banks and their subsequent merger with its Italian business Crédit Agricole Italia SpA, the eighth-largest Italian bank by assets, according to S&P Global Market Intelligence data. The Creval deal would place it in fifth position and strengthen its position in the north of Italy, the country's economic powerhouse.
Creval "is located in a geographical area which is fairly wealthy and there will be synergies with their Italian subsidiary," Jérôme Legras, head of research at Axiom Alternative Investments, said in an interview. "It's an intelligent deal which goes in the right direction."
Universal model
"Crédit Agricole is not just a simple banking group. It has an enormous amount of insurance, asset management etc., and there are synergies there as well because the north of Italy is an area where there are a lot of entrepreneurs and people who have substantial savings to invest," Legras said.
In a presentation, Crédit Agricole said it would double its market share to 6% from 3% in the northern region of Lombardy, where 40% of Creval's branches are located.
"It's about diversification outside France ... where it's quite competitive," Tom Kinmonth, fixed-income strategist at ABN Amro, said in an interview.
"Of all the players that can do things in Italy, they are easiest because of their existing footprint.
"Crédit Agricole Italia does everything — retail, private, little bit of business banking, it has a big focus on the SMEs, which is big in Italy," Kinmonth said. "They've been in Italy, they know the business, they know they can bring that universal model across."
Creval has some 700,000 retail and SME customers and through the acquisition, Crédit Agricole Italia would bolster its customer numbers to nearly 3 million in total while the combined balance sheet would be €100 billion.
The two banks are no strangers to each other. Crédit Agricole Assurances SA, Crédit Agricole's insurance arm, holds a 9.8% in the Italian lender and already sells insurance to Creval customers.
High-margin products
Giampiero Maioli, head of Crédit Agricole in Italy, told analysts on Nov. 23, the day Crédit Agricole launched its €737 million bid for the bank, that Crédit Agricole Italia would sell high-margin investment products to Creval customers through the insurance unit and its asset management subsidiary Amundi SA.
Crédit Agricole aims to integrate Creval into Crédit Agricole Italia by 2022, he said. Like Crédit Agricole, Creval is a cooperative bank, with tens of thousands of small shareholders, and focuses on serving local people and regions, Maioli said.
The French bank aiming for a 10% return on investment in three years from the acquisition. In the third quarter of 2020, Crédit Agricole's Italian revenues were €462 million, while loans outstanding stood at €46 billion.
Crédit Agricole Group, the ultimate parent of the bank, is the world's 10th largest bank by assets, and CEO Philippe Brassac has previously said he prefers partnerships for growth, which analysts say is a cheaper and less complex option than some of the bank's previous ventures.
Kinmonth said the deal was more a "bolt-on" acquisition, with minimal impact on the bank's capital. Crédit Agricole estimates a 20-basis-point hit to its common equity Tier 1 ratio.
Crédit Agricole CFO Jérôme Grivet said Crédit Agricole would continue to develop partnerships. The Creval deal would expand its retail network in Italy, but would not preclude additional partnerships in Italy or elsewhere, he said.
'Good chance' of deal
The proposed acquisition would be the latest in a string of deals among European banks. In Spain, CaixaBank SA is set to take over peer Bankia SA, while in Italy Intesa Sanpaolo SpA acquired Unione di Banche Italiane SpA, and regulators have been pushing for consolidation as a means to fix anemic profits at European banks under pressure from ultralow interest rates, tougher regulation and fierce competition for market share.
Creval reportedly wants more money and believes the offer is too low because the Italian government is preparing tax breaks for companies wanting to merge.
"Creval is a small bank in a market where there is a lot of pressure from regulators and supervisors for consolidation," Legras said. "There are not a lot of other potential buyers. They might try to raise the price a bit but I believe there's a good chance [the deal] will take place."
Neither Creval nor Crédit Agricole responded to requests for comment.
