EUR 850.00 For Business Accounts Only

Morningstar | Mediobanca Updated for 1H19 Results

Historically, Mediobanca was a corporate and investment bank that built up a large book of principal investments. Over the past decade, Mediobanca has sold most of its noncore investments, with a stake in Italian insurer Generali the last major investment left in the portfolio. Subsequently, the main thrust of Mediobanca’s strategy has been the expansion of its wealth-management offering. This is a deposit-generating business, and we believe the strategy makes sense, as it will improve Mediobanca’s funding position, diversifying its funding away from the institutional market. As these businesses are typically capital-light, it should also support profitability. If we strip out the Generali investment, we are left with three operating business units. Corporate and investment banking and consumer finance each currently contribute around 45% of earnings, while the still-subscale wealth-management business contributes 10%.Investment in Mediobanca is complicated by the fact that management does not have direct control or even significant influence over half of its market capitalisation. Mediobanca will unwind its position in Generali over time, but Generali needs to trade at higher multiples for a disposal to make sense from a capital perspective. Unconsolidated equity investments are very capital-intensive under Basel III.Mediobanca has largely completed its strategic repositioning. The major outstanding initiative would be a disposal of its stake in Generali. The challenge for Mediobanca will be to execute its strategy. Growing the asset and wealth benefit business' revenue could drive meaningful earnings growth in this division as operational leverage kicks in. However, this could be offset to a degree by a normalisation of loan-loss provisions in the consumer finance business, where loan-loss provisions are below midcycle levels, in our opinion.