European Banking

The new banking group, which will retain the name of UniCredit, will boast a market capitalization of around 100 billion euros ($135 billion) to become the world’s six largest bank, and the second biggest in Europe after Britain’s HSBC.

UniCredit’s board met on Sunday in Milan, while Capitalia’s board gave its approval at a meeting in Rome. UniCredit is offering 1.12 of its own shares for every Capitalia share in the takeover.

The new group will generate more than half of its income outside Italy, thanks to UniCredit's strong position in eastern Europe. It also keeps Capitalia, Italy's third-largest bank, out of the hands of prospective foreign buyers

Focus on Europe

The merged group will have about 9,200 bank branches globally, roughly 960 billion euros in total assets and 40 million customers from Italy to Russia. Outside of Italy, UniCredit will rank second biggest in Germany and number one in the eastern European countries of Poland, Bosnia, Bulgaria and Croatia.

“We consider ourselves to be European,” UniCredit chief executive Alessandro Profumo said at a press conference on Monday. “We want to maintain our European vision.”

Profumo emphasized that for the bank, “Russia and Turkey are part of Europe.”

Job losses

When asked about redundancies, Profumo said there hadn’t been an opportunity to settle on final numbers, but he admitted with 170,000 employees: “it is obvious that we have to become more efficient.” The Italian daily La Repubblica reported in the past few days there had been rumors of 7,000 redundancies by 2010.

Profumo will be chief executive of the new bank, and UniCredit’s current chairman, Dieter Rampl will also stay on in the same role. Capitalia Chairman Cesare Geronzi will become vice chairman of UniCredit.

Profumo has earned a reputation as someone more than ready to break the conventions of the rather staid world of Italian finance. He shook up normal working practices at UniCredit when he took over, introducing performance targets and aggressive marketing techniques, which were unheard of until then in Italy's stuffy banking world.

Buying spree

The takeover of Capitalia is only the latest in a series of acquisitions by Profumo, who only two years ago engineered Europe's biggest cross-border banking deal with the takeover of Germany’s HypoVereinsbank.

There could also be more takeovers on the horizon. It’s common knowledge that Profumo was looking at a possible UniCredit merger with the French banking giant, Societe Generale (SocGen), before deciding to go with Capitalia.

On Monday in an interview with La Repubblica, Geronzi said current market trends meant “anything was possible” and described a deal with SocGen as "favorable".

Government behind deal

The proposed Capitalia takeover has already received the backing of the Italian government, with Prime Minister Romano Prodi and Economy Minister Tommaso Padoa-Schioppa saying they supported the move. However, it still needs approval from Italy's central bank and antitrust authorities.

In a jointly released statement, the banks said they hoped to complete this process by the start of October.

Conditions have been ripe for consolidation of Italian banks since Bank of Italy Governor Mario Draghi last year threw out rules requiring banks to notify the government in advance of mergers. His predecessor, Antonio Fazio, was forced to give up the lifetime job under accusations he used the rules to keep out foreign bidders.