November 17, 2016 / 4:05 PM / 3 years ago

Mediobanca to beef up CIB returns

LONDON, Nov 17 (IFR) - Mediobanca has set out plans to improve the return on equity at its corporate and investment bank by four percentage points to 13% over the next three years.

The Italian lender wants to focus on capital-light businesses, such as corporate finance, as well as boost its equity sales capability and credit management businesses.

The latter, which encompass factoring as well as a division focused on managing non-performing loans, have particularly attractive ROEs of up to 40%, said chief executive Alberto Nagel at an investor event.

Mediobanca has long prided itself on being the firm of choice for high-end advisory work for major Italian organisations. It is currently advising Banca Monte dei Paschi di Siena on its latest recapitalisation plans alongside JP Morgan.

Nagel now wants to expand further outside its domestic market as well as extend down into the mid-market space in Italy. “We think we can cover clients in a more effective way by empowering our client coverage and building a mid-cap platform,” he said.

For the last five years revenues in the division have been resilient at between 550m and 620m annually. Now Nagel said he wanted to build on this base. The group already has pan-European capability in financials but now wants to develop this across other sectors.

“We want to enhance client coverage in specific industries and customer segments and improve the size of our speciality finance businesses,” said Nagel.

Mediobanca also wants to expand its equity capital market franchise beyond its core Italian market as the same time widening its equity sales coverage in the secondary market.

The CIB has an enviable ratio of costs to income of just 40%, primarily because it does not have a fixed income and currencies trading business on any scale.

“We operate more like a boutique than many banks who have 80% of their revenues from FICC trading and only 20% from clients,” said Nagel.

Larger debt trading businesses commonly have costs-to-income ratios of over 60%.

The biggest initiatives will be developing the mid-market corporate finance capability and the bank’s Creditech platform for managing NPL portfolios.

Mediobanca believes there is large opportunity here, estimating that of the 341bn of NPLs in Italy just 36bn were sold by banks in the last four calendar years. Creditech can manage loans as well as advise on their sale.

The group’s purchase of London credit manager Cairn Capital last year is also helping this push into the NPL arena. Mediobanca said it will also seek to develop a larger role in the asset-backed securities market on the primary side, as well as seek further acquisitions of credit managers.

These could partially be funded by the sale of stakes in insurer Generali and other businesses raising an anticipated 1.3bn. (Reporting by Christopher Spink; Editing by Ian Edmondson)

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