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By Gianluca Semeraro and Mathieu Rosemain
MILAN/PARIS (Reuters) -Italy's Generali and France's BPCE said on Tuesday they had taken the first step towards creating Europe's largest asset manager by revenue as the industry bets on size to protect profit margins.
The boards of Italy's top insurer and France's second-largest bank on Monday approved a non-binding memorandum of understanding to set up a joint venture managing 1.9 trillion euros ($2 trillion) in assets, aiming to close the deal by early 2026.
Europe's asset management sector is in flux, with players weighing tie-ups or disengagement as low-margin passive products threaten profits, mighty U.S. rivals gain market share and technology requires hefty investments.
Dealmakers have told Reuters they expect activity in financial services to pick up in 2025, after BNP Paribas last year agreed to buy insurer AXA's asset management business.
European leader Amundi also discussed a tie-up with Allianz Global Investors, but talks collapsed.
"The asset management industry is undergoing rapid changes with scale and size being more critical than in the past," BPCE CEO Nicolas Namias told a joint press briefing as he presented the "very ambitious" project with Generali CEO Philippe Donnet.
Deals in asset management are at high risk of failure, given the importance of client relations and corporate culture.
But a person directly involved in the Generali-BPCE deal said that growing was "imperative" and the parties were determined to make it work, adding a seven-year lock-up and shareholding agreement underscored their commitment.
Retaining ownership of their respective assets, Generali and BPCE-owned Natixis Investment Managers will hand over their management to a new Dutch entity, of which they each own 50%, for 15 years during which they are bound to guarantee the new venture a certain level of assets and fees.
Day-by-day operations will remain in France, Italy and the United States, where Generali last year bought Conning Holdings, an asset manager serving insurers and pension funds.
Ranking second in Europe after Amundi in terms of assets under management (AUMs), the joint venture will lead the industry with 4.1 billion euros in revenues.
"If we are successful during 15 years, I think we will continue being successful for another 50," Namias said.
The new entity, whose value the two companies estimated at around 9.5 billion euros, will have a "balanced governance and control rights", with Namias as chair and Donnet as vice chair.
Chief executive will be Woody Bradford, the Conning CEO who now heads Generali's asset management operations. Natixis IM CEO Philippe Setbon will be deputy CEO.
Natixis IM is contributing around 1.3 trillion euros in AUMs to the venture and Generali just over 630 billion, Donnet said.
CONCERNS
Benefits from the combination are projected to reach around 200 million euros over five years. During the same period Generali has committed to providing 15 billion euros in "seed money" to kickstart new investment initiatives.
The deal faces regulatory hurdles, especially in Italy, where the government is keen for domestic savings to keep supporting the refinancing of its large public debt.
Rome must clear the deal under "golden power" legislation that gives it clout over firms deemed as strategic for the country.
On Monday, the three board representatives of leading Generali shareholder Francesco Gaetano Caltagirone, who is close to Italy's conservative government, voted against the deal as Generali's 13-member board approved the MOU, three people close to the matter said.
Fausto Orsomarso, a member of Prime Minister Giorgia Meloni's Fratelli d'Italia party in charge of banks, expressed concern about the deal.
"We're not against creating a new European asset management leader, but we can't hide our worries, for shareholders and national interests, that this new continental player is Italian only when it comes to Italians' savings," he said in a note.
Rothschild and Fenchurch advised BPCE. Ardea Partners, Citi, Mediobanca and Zaoui & Co advised Generali.
($1 = 0.9655 euros)
(Reporting by Gianluca Semeraro in Milan and Mathieu Rosemain in Paris; Additional reporting by Elvira Pollina; Writing by Valentina Za; Editing by David Evans, Christina Fincher and Jan Harvey)
