Banco BPM and UniCredit's Merging Crisis: A Contrarian Play in Italian Banking

The proposed €10.1 billion merger between UniCredit and Banco BPM, once a cornerstone of Italian banking consolidation, now teeters on collapse. Regulatory roadblocks, shareholder apathy, and looming legal deadlines have created a crossroads for both institutions—and an intriguing opportunity for contrarians.

Regulatory Hurdles Derailing the Deal

UniCredit's obligation to divest €22.2 billion in southern Italian SME loans and exit Russian operations by January 2026—alongside the European Commission's demand to sell 209 Banco BPM branches by December—has proven insurmountable. The Italian “golden power” rules, designed to protect national interests, have become a straitjacket. With no buyer for its Russian assets acceptable to both Western and Russian authorities, UniCredit's CEO Andrea Orcel now admits withdrawal is “probable.”

A July 9 court ruling will decide whether these conditions can be enforced. If the court sides with UniCredit, the deal may proceed—but the damage is already done.

The Tender Dilemma: A Contrarian Catalyst

The merger's fate hinges on shareholder participation. As of June 2025, only 0.016% of shares have been tendered, far below the 66% threshold required to avoid a €10 billion write-off for UniCredit. If the tender fails, Banco BPM's shares could crater—a scenario that could create a buying opportunity for investors willing to bet on Banco BPM's standalone value.

Banco BPM's Path Forward: Flexibility Amid Fragmentation

Banco BPM, with its strong SME franchise and 6.5% ROE, is far from a distressed asset. Post-merger collapse, management could pivot to smaller, accretive deals—such as acquiring regional banks or niche lenders—without the burden of UniCredit's regulatory quagmire. Its 15% stake in Monte dei Paschi di Siena (now under investigation) adds complexity, but Banco BPM's agility in a fragmented Italian banking sector remains a key advantage.

UniCredit's Crossroads: Overleveraged on M&A

UniCredit's stock trades at 0.6x price-to-book, a historic low reflecting investor skepticism about its ability to achieve €1.1 billion in synergies. Orcel's assertion that “our future is bright with or without M&A” rings hollow given the bank's reliance on deals to offset stagnant organic growth. With capital tied to Russian nationalization risks and regulatory fines, UniCredit's execution risks remain high.

Investment Implications: Selectivity Reigns Supreme

• Banco BPM: A contrarian buy if the tender fails. Short-term volatility could mask long-term value in its resilient SME business and flexibility to pursue smaller deals.
• UniCredit: Avoid until regulatory clarity emerges. Its valuation already prices in significant risk, but further headwinds loom.
• Sector Play: Favor banks with organic growth profiles, such as Intesa Sanpaolo (strong wealth management) and Santander (digital innovation), which thrive in fragmented regulatory environments.

The UniCredit-Banco BPM impasse underscores a broader truth: Europe's banking M&A era may be ending. For investors, the path to profit lies in identifying institutions that can thrive without relying on consolidation—a lesson Banco BPM may yet master.

Final Call: Banco BPM's shares could be a contrarian gem—if you're prepared to stomach near-term turbulence. Stick to banks building value internally, and avoid those still chasing deals. The Italian banking sector's next chapter will be written by the adaptable, not the acquisitive.