Jean Pierre Mustier's successor at UniCredit SpA will likely have to contend with increasing pressure, both political and internal, to buy Banca Monte dei Paschi di Siena SpA, according to industry experts.

Mustier is set to retire from his role when his current mandate expires at the end of April 2021. UniCredit is looking both internally and externally for a new CEO. Victor Massiah, former CEO of Unione di Banche Italiane SpA and Bernardo Mingrone, CFO of Italian payments giant Nexi SpA, are among those who have been mooted as potential replacements by the media.

The Italian finance ministry has reportedly been pushing for UniCredit to act as a white knight for troubled Monte dei Paschi, but Mustier has repeatedly stated his commitment to "no M&A" since unveiling the bank's latest strategic plan in December 2019. This clash may have been a factor behind Mustier's resignation on Nov. 30 after more than four years at the helm of the Italian lender, and a decision about whether to proceed with a takeover or not is set to weigh on whoever takes over.

In a company statement, Mustier said his reason for resigning was that Team 23, his three-year strategic plan for the bank from 2020 to end-2023, "no longer corresponds to the board's current thinking."

Team 23, unveiled at the bank's investor day in London in December 2019, prioritizes organic growth, optimization of the bank's cost base and maximizing the return of capital to shareholders. Mustier made it clear at the time of the launch that M&A had no place in the new strategic plan, a position that he has not deviated from throughout 2020.

Marriage of convenience?

However, market speculation regarding a takeover of Monte dei Paschi by UniCredit has been rife in recent months.

Monte dei Paschi is roughly 64%-owned by the Italian state after it was rescued from the verge of collapse in a €5.4 billion bailout. As part of the conditions of the rescue, European authorities have told the bank it must be returned to private ownership by the end of 2021.

With time running out, the Italian finance ministry appears keen to encourage a sale of Monte dei Paschi to UniCredit, although the Five Star Movement, a populist party that rules as part of a coalition government, wants the bank to remain in public hands, because they are uncomfortable with the idea of what they perceive as a local, Italian bank being sold off to a big international lender.

"For sure, the government wants to get rid of Monte dei Paschi. And there are not many alternatives to UniCredit for an aggregation," Luigi Tramontana, analyst at Banca Akros, said in an email.

But what's good for the Italian government is not necessarily good for UniCredit investors, something that Mustier would have been acutely aware of, according to Jérôme Legras, head of research at Axiom Alternative Investments.

"The Italians really want to save Monte dei Paschi and all the Italian political and economic establishment have been backing this deal. [Mustier] thought it was his job to protect UniCredit shareholders. So there's been a difference of opinion," he said.

"That's why the market has taken it badly because institutional investors are on Mustier's side from this point of view. They believe their money should not be used for political and economical means in Italy."

UniCredit's share price fell to €7.93 per share as of close of play Dec. 1, down from €8.64 at the previous day's close.

Monte dei Paschi would be a mixed blessing as an acquisition targe, industry experts have previously told S&P Global Market Intelligence. The bank has a concentration of branches in Italy's wealthy northeast, but it is also suffering from a capital shortfall of as much as €2 billion and could face legal claims of up to €10 billion for historic mismanagement, which would make a merger risky and difficult to execute.

Victor Galliano, a financials and financial technology analyst at Galliano's Latin Notes Ltd. and contributor to SmartKarma, an independent investment research platform, said that UBI's Massiah would get his vote as new CEO. That is because he would be the candidate most likely to push back against the board "on any potentially excessively generous deal" for Monte dei Paschi, he said in an email.

Profitability worries

The question of Monte dei Paschi aside, an incoming CEO at UniCredit would have to tackle the issue of low profitability, David Grinsztajn, equity research analyst, head European banks at AlphaValue, said in an email.

The bank reported a reclassified third-quarter net profit of €680 million, down from €1.18 billion a year ago. However, worries about profitability are not new, with Mustier warning in late 2019 that profitability growth would remain low through 2020 as the bank grappled with low interest rates and a sluggish economy in its home market of Italy.

One area that would be less of a concern for Mustier's successor is the bank's bad debt burden.

"I would say that Mustier did a great job in terms of balance sheet clean-up," Grinsztajn said.

As of the end of the third quarter, UniCredit had €22.7 billion of gross nonperforming exposures on its balance sheet, compared with €28.8 billion a year previously.

New move for Mustier?

As for Mustier's future, it is possible that he could return to French bank Société Générale SA, where he previously worked.

"I'm already hearing rumors about him going back to Société Générale but who knows? It's possible. SocGen has said it has started looking for a successor to [Frédéric] Oudéa," Legras said.

Oudéa's term as CEO expires in 2023.

Mustier quit his role as head of investment banking at Société Générale in 2009 following the Jerome Kerviel scandal. Mustier was the manager of Kerviel, whose unauthorized trading activity ended up losing the bank €4.9 billion.