Italy's ambitious banking consolidation drive has largely collapsed after government intervention and shareholder opposition killed two major acquisition attempts worth more than $24 billion combined. UniCredit abandoned its nearly $17.5 billion bid for Banco BPM in July, citing unclear conditions imposed by Rome's "golden power" screening rules, while Mediobanca shareholders this month rejected a roughly $7 billion offer for Banca Generali.

What to Know:

• UniCredit withdrew its $17.5 billion Banco BPM acquisition after Italian government imposed opaque conditions through national security screening rules
• Mediobanca shareholders voted against the bank's $7 billion Banca Generali takeover, seen as defense against Monte Dei Paschi's pursuit of 35% stake
• Only Monte Dei Paschi's bid for Mediobanca remains active from Italy's summer of high-profile banking merger attempts

The banking sector consolidation began gaining momentum in late 2024, driven by Europe's improved financial performance and the need to compete with larger Wall Street institutions. Italian banks showed particular appetite for mergers as restructuring programs, European defense spending increases, and higher investment banking returns strengthened their balance sheets. The country's relatively fragmented banking system, as noted by Fitch Ratings in April, created natural consolidation opportunities.

Italy's economic performance provided fertile ground for banking growth. The International Monetary Fund forecasts 0.5% economic growth for Italy this year, outpacing Germany's projected 0.1% expansion.

Deutsche Bank analysts noted Italy has "outperformed most of its Eurozone peers in recent years," though momentum may ease as Next Generation EU investment funds diminish.

The consolidation wave initially appeared unstoppable. UniCredit targeted Banco BPM with its $17.5 billion offer while simultaneously building positions in German lender Commerzbank and Greek Alpha Bank. Mediobanca pursued Banca Generali as a defensive measure against Monte Dei Paschi's advancing interest. Multiple smaller deals also materialized, including Banca BPER's successful acquisition of Banca Sondrio and Illimity Bank's takeover by Banca Ifis.

Government Intervention Derails Major Deals

The Italian government's use of golden power rules proved decisive in derailing UniCredit's Banco BPM bid. These regulations, typically reserved for transactions threatening national security, imposed conditions including a timeline for UniCredit to halt Russian operations and requirements to maintain Banco BPM's loan-to-deposit ratio unchanged for five years. Italian Finance Minister Giancarlo Giorgetti defended the intervention's "absolute correctness" and threatened resignation if overruled.

"The Italian Finance Ministry's intervention was the final nail on the coffin for UniCredit's third takeover attempt at Banco BPM," said Filippo Maria Alloatti, head of financials for credit at Federated Hermes Limited. The European Commission questioned Rome's golden power application, arguing it exceeded typical national security parameters.

Mediobanca's shareholders delivered their own rejection, voting down the Banca Generali acquisition amid concerns about strategic direction. William Cain, head of M&A Research EMEA at Mergermarket, characterized the vote as "effectively a referendum on Mediobanca's standalone strategy." The rejection cleared the path for Monte Dei Paschi to potentially secure its targeted 35% Mediobanca stake.

The failed deals reflect broader tensions between national governments and European Union consolidation goals. Spain faces similar challenges as BBVA pursues Sabadell despite Madrid's resistance, while the EU has launched legal challenges against both Spanish and Italian intervention in banking mergers.

Cross-Border Expansion Continues Despite Domestic Setbacks

Italian banks maintained their international expansion despite domestic merger failures. UniCredit converted its synthetic Commerzbank stake into 26% direct ownership and secured European Central Bank approval to hold up to 29.9%, though Berlin opposes any full takeover. The bank also raised its Alpha Bank holding to nearly 26% through additional financial instruments.

These cross-border moves highlight Europe's ongoing struggle with banking integration. European Central Bank supervisory board chair Claudia Buch noted in April that "cross-border mergers have remained relatively rare, about 75% of banks' lending portfolios are invested in their home markets."

European Banking Authority Chairman Jose Manuel Campa expressed frustration with the persistence of "domestic mergers with a domestic logic, not single-market mergers."

Consolidation has reduced EU bank numbers since 2009, though approximately 4,752 institutions still operate across the European Union as of June, with 418 in Italy according to Statista. The banking union supervision framework launched after the financial crisis remains incomplete, limiting cross-border integration progress.

Financial Terms and Market Context

Several key financial concepts drive the consolidation trend. Golden power rules allow governments to block or condition transactions deemed threats to national security or strategic interests. Loan-to-deposit ratios measure bank efficiency by comparing lending volumes to deposit bases. Synthetic stakes involve derivative instruments that provide economic exposure without direct share ownership.

Investment banking returns have improved amid market volatility driven by U.S. tariff policies and increased European defense spending. Next Generation EU funds represent the bloc's post-pandemic recovery program, providing significant infrastructure and development financing.

The banking union aims to create unified European supervision and resolution mechanisms for major financial institutions.

Credit ratings agencies like Fitch evaluate banking system fragmentation by measuring market concentration and competitive dynamics. The European Central Bank's supervisory framework covers significant institutions across member states, while national regulators maintain oversight of smaller banks.

Remaining Opportunities and Future Outlook

Despite recent setbacks, analysts believe consolidation momentum persists. "A merger between Credit Agricole Italy and Banco BPM seems likely in the medium-term," Alloatti predicted, noting Credit Agricole's move toward a 20% Banco BPM stake. Monte Dei Paschi's Mediobanca pursuit remains active, with increased chances of securing its targeted ownership threshold.

Stefano Caselli, dean of SDA Bocconi School of Management, emphasized Italy's role as a "case study for the EU to test how M&A can evolve in the European banking sector."

The country's experience demonstrates the complex balance between commercial logic, shareholder interests, and government policy objectives.

The consolidation trend extends beyond Italy's borders. Spain's Banco Santander completed its £2.65 billion TSB acquisition from Sabadell, while BBVA maintains its Sabadell pursuit despite regulatory obstacles. These transactions reflect broader European banking sector pressures to achieve scale and compete internationally.

Closing Thoughts

Italy's banking consolidation wave encountered significant political and shareholder resistance, reducing three major deals to one active pursuit. While Monte Dei Paschi's Mediobanca bid continues, government intervention through golden power rules and shareholder opposition have demonstrated the complex challenges facing European banking integration, leaving the sector's consolidation future uncertain despite underlying commercial pressures.