Intesa gets ECB nod for UBI takeover, waives COVID-19 clause

MILAN: Italian bank Intesa Sanpaolo said on Friday it had received European Central Bank authorisation to take over smaller rival UBI Banca, adding it was waiving a provision that would allow it to drop the deal due to COVID-19.

Shortly before coronavirus contagion emerged in Italy in February, Intesa unveiled a surprise all-paper bid for UBI to create the euro zone's seventh largest banking group, in a push to lift profits through cost cuts and a focus on insurance and wealth management.

Intesa, which also needs approval from Italian antitrust and market authorities before launching the offer, said the ECB had in the meantime authorised it to acquire a stake of at least 50% plus one share in UBI.

To fend off a legal challenge from UBI to stop the bid, Intesa said it would not include the COVID-19 pandemic among conditions that could affect the validity of the offer.

UBI had filed a complaint with the Italian market watchdog, saying the bid should no longer be considered as valid because the pandemic gave Intesa the right to walk away based on a provision normally included in acquisition deals and known as the 'material adverse change' (MAC) clause.

UBI had said it would file the same complaint in court so as to be freed from the 'passivity rule' triggered by the offer, which prevented Italy's fifth-largest bank from mounting an active defence against the Intesa bid.

Intesa said the authorisation process had taken into account the goals the merger intended to achieve, including raising provisions against loan losses at UBI Banca to Intesa's levels, as well as reducing UBI's impaired loan burden.

Cutting problem loans has been a key focus for ECB supervisors in relation to Italian banks in recent years to rid them of the legacy of past recessions.

The industry now faces a fresh surge in unpaid loans due to the pandemic, which is expected to drive an economic contraction of as much as 13% this year.