Intesa Sanpaolo (ISNPY) stock surged Monday after the lender walked away from a takeover of of the Mediterranean nation's largest insurer, Assicurazioni Generali (ARZGY) .

Italy's second largest bank said after the market closed Friday that it an eagerly-anticipated merger between it and Europe's second-largest insurance group would be unlikely to yield a sufficient return and would compromise its 'leadership position' in terms of regulatory capital.

It will now go back to chasing organic growth instead of acquisitions, according to a statement from the bank, and will stick to a prior commitment to return €10 billion ($10.6 billion) of capital to shareholders through cash dividends over the next four years.

Intesa shares were marked 4.8% higher by 09:00 GMT, changing hands at €2.18 each and the 0.18% advance for the Stoxx Europe 600 Banks index. Generali shares fell 4.18%, erasing its 2017 gain, to trade at €13.50 each.

Italy's La Stampa reported in January that the lender was considering a takeover of the insurer that would then see Germany's Allianz (AZSEY) buying some of its assets. Intesa later confirmed that it was examining a possible combination between itself and Generali but made no mention of Allianz.

A deal between the pair would have given Generali shareholders an easy way out from a tough operating environment characterized by low interest rates and rising political uncertainty.

But the company itself didn't want to play ball and neither did the Italian press.

In January, after news of the takeover plan broke, Generali bought just more than a 3% stake in Intesa - exploiting Italian laws on cross-shareholdings which then prevented Intesa from buying any more of the insurer without first making an offer for at least 60% of the company.

"Generali is crucial for the country," said UniCredit UNCFF CEO Jean-Pierre Mustier in response to questions from reporters in January. "Generali must remain Italian."

Mustier's comments came as part of an effort to placate the media after suggestions that the appointment of French CEO's at both UniCredit and Generali meant that overseas acquirers might now find it easier to get their hands on Italian assets.

His word would have carried some weight because UniCredit is the largest shareholder in Mediobanca (MDIBF) which is, in turn, the largest shareholder in Generali.

With this in mind, Generalis reticence to support a merger may well have chimed with the Italian public, who are still grappling with a low growth economy and the risk of another election after a December referendum on constitutional reform led to the resignation of prime minister Matteo Renzi.