Stan O’Neal is a leading example of this: being prepared to settle for less than 50% of BlackRock in order to be in the business of managing institutional fixed income rather than just being a side player (see this month’s Cover Story). But he is not the only one thinking that way.
Corrado Passera, the managing director and CEO of Italy’s largest bank, Intesa Sanpaulo, hinted recently that one solution to the bank’s challenge in eastern Europe – having sufficient clout across the region – would be to partner with another bank in a similar situation. Intesa has operations in 12 countries in central and eastern Europe and the Mediterranean but there are still some major holes in the network, such as Poland and Ukraine.
“There are banks like ourselves that have sub-optimal networks in eastern Europe and a further phase of consolidation can be expected in the region. Forming a regional joint venture with another bank is one possibility,” he says.
Having managed one of the trickiest mergers in history – between Intesa and Sanpaulo – involving tricky union negotiations and job losses, an eastern European project would be eminently do-able.
The thirst for joint ventures is coming about because of the size dilemma in banking. Clearly, banks and businesses that cannot grow to a significant size do not have market power and cannot make essential investments in IT and trading platforms. That makes half of an attractively sized business better than a desperate attempt to build it from scratch.
But, there are also limits to size that may be becoming relevant to banking. “Size is a value only until a certain point,” says Mr Passera, noting that in other industries there has been a wave of consolidation followed by deconsolidation.
Whichever way it goes, and a proper single European market on the retail side could change the optimum size, Mr Passera points out that now that Italy is in a position of having two of Europe’s leading banks – Intesa and UniCredit – it is also in a position to play a central role in the next chapter.
