UniCredit Shakeup Tightens Foundations' Grip on Banks

The management shakeup at UniCredit SpA, Italy’s largest bank, may serve to increase the influence of Italy’s banking foundations, institutions that trace their roots to the 17th century, and curb its international growth.

UniCredit’s board may choose a successor to Alessandro Profumo as chief executive officer at a meeting in Warsaw today, and create a general manager role to share the duties, two people with knowledge of the matter said. The foundations, among the Milan-based company’s largest investors, have said they favor a general manager post to focus on local issues.

Profumo, architect of the bank’s $65 billion expansion, stepped down last week after clashes with foundations that hold more than 11 percent of UniCredit. The regional institutions, which in total oversee 49 billion euros ($67 billion) of assets, use money generated by their holdings in banks to fund philanthropic programs at schools and museums. They are partly run by politicians who advocate more investment at home.

“Italy will probably weigh more than before, and the bank’s strategy will focus on consolidating rather than expanding,” said Mario Spreafico, chief investment officer at Schroders Private Banking for Italy in Milan, where he oversees about 1.5 billion euros. “The new CEO will have to create a collaborative spirit with the shareholders through the board.”

Photographer: Giuseppe Aresu/Bloomberg

Alessandro Profumo, seen here, architect of the bank’s $65 billion expansion, stepped down last week after clashes with foundations that hold more than 11 percent of UniCredit. Close

Alessandro Profumo, seen here, architect of the bank’s $65 billion expansion, stepped... Read More

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Photographer: Giuseppe Aresu/Bloomberg

Alessandro Profumo, seen here, architect of the bank’s $65 billion expansion, stepped down last week after clashes with foundations that hold more than 11 percent of UniCredit.

Leading Candidates

Federico Ghizzoni, 54, one of the bank’s four deputy CEOs, is the leading candidate for the CEO job after going head to head for the position with Roberto Nicastro, 45, another deputy CEO, said the people, who spoke on condition of anonymity because the selection process is private. Deputy CEO Paolo Fiorentino, 54, is also in the running for the top roles, the people said. A UniCredit official declined to comment.

The Wall Street Journal earlier reported Ghizzoni’s likely nomination.

UniCredit’s biggest foundation shareholders are Fondazione Cariverona, with a 4.6 percent stake, Fondazione CRT, which owns 3.3 percent, and Carimonte Holding SpA, which controls 3 percent. Officials at the foundations declined to comment. The foundations at UniCredit, which control 9 of its 23 board seats, are urging the bank to lend more in Italy to foster economic growth and hiring following the financial crisis.

They are among the country’s 88 foundations, created two decades ago when the philanthropic arms of Italy’s savings banks were split from their lending operations to pave the way for the industry’s privatization.

Photographer: Giuseppe Aresu/Bloomberg

UniCredit deputy CEO Roberto Nicastro who is a possible candidate for CEO. Close

UniCredit deputy CEO Roberto Nicastro who is a possible candidate for CEO.

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Photographer: Giuseppe Aresu/Bloomberg

UniCredit deputy CEO Roberto Nicastro who is a possible candidate for CEO.

Northern League

Their growing clout is in part the result of April local election victories by the Northern League, gains which the party’s leader, Umberto Bossi, said he would exploit to “seize the banks.” The wins boosted the party’s control in the regions of Piedmont, Lombardy and Veneto, and in turn their presence in the bank foundations’ boards, which are made up of regional and local government and church representatives.

Global banks have “lost touch with their land of origin,” Northern League lawmaker Maurizio Fugatti said in a note commenting on Profumo’s departure, posted on the party’s website on Sept. 22. The political influence has raised concern among some analysts and investors.

“It’s typically seen as desirable for banks to be widely held because the concern is that large shareholders with particular interests in mind influence banks to their own benefit,” said Colin Mayer, a finance professor at Oxford University’s Said Business School in Oxford, England. “In UniCredit’s case the regional holdings, through the foundations, are directing the bank to favor political objectives.”

‘Judging the Banks’

Supporting local communities through lending had formed the basis of the mission of the nation’s savings banks, lenders whose roots date as far back as 1624, when the Republic of Siena granted “Monte Pio,” a philanthropic group, banking status.

More than 3 1/2 centuries later, in 1995, Banca Monte dei Paschi di Siena SpA and Fondazione Monte dei Paschi split, and the foundation sold shares in the bank to the public in 1999. It retains a 46 percent holding.

“The banks have been created and developed by foundations,” said Dino De Poli, chairman of Fondazione Cassamarca, which owns 0.8 percent of UniCredit. “Foundations play their shareholders’ role, addressing and judging the banks at the appropriate time.”

The foundations, which backed the lenders through the financial crisis, are also seeking payback.

Profumo seized on the opening of the European markets brought on by the introduction of the euro to expand at home and abroad. He turned regional bank Credito Italiano SpA, which he took over in 1997, into UniCredit, the sixth-biggest lender in the euro region, with 954.6 billion euros of assets at the end of June.

Takeovers left Profumo short of funds when confidence in banks collapsed in 2008 and credit became scarce, forcing him to raise cash from investors twice in 18 months. Relations with some of the foundations soured after recent Libyan investments in the lender.

Hands in Pocket

“Our foundations proved that when we were asked to put our hands in our pocket -- and some were asked to repeat the exercise over a short period of time -- we didn’t hesitate for a moment,” Giuseppe Guzzetti, chairman of Acri, the foundation industry group, told reporters on Sept. 27.

We will continue to “strengthen our banking system in support of the country’s output,” said Guzzetti, who also chairs the second-biggest foundation, Fondazione Cariplo. He declined to be interviewed for this article.

The foundations diversified their holdings over the years. They control 30 percent of Italian state-lender Cassa Depositi e Prestiti SpA, and have a 24 percent stake in F2i Sgr, an infrastructure fund.

‘Outside Pressures’

The foundations also hold art collections. Milan-based Fondazione Cariplo, which gave about 211 million euros to philanthropy in 2008, owns about 770 paintings including works by Giovanni Battista Tiepolo and 115 sculptures including pieces by Antonio Canova. In all, the foundations distributed 1.4 billion euros for philanthropic projects last year, according to Acri.

“The financial crisis is the reason why bank profitability is not what it was in the 1990s,” said Giuliano Segre, chairman of Fondazione Venezia, which owns 0.6 percent of Milan-based Intesa Sanpaolo SpA. “Some foundations want to affirm their control, and it’s not clear if they’re acting in the best interest of the investment, or relaying outside pressures.”

Segre, who plans to keep cutting the foundation’s Intesa stake, said the foundations should exit the banks and instead invest directly in businesses they support.

At UniCredit, which earns about 55 percent of its revenue outside Italy, and Intesa, which makes 22 percent of sales abroad, reinvigorated foundations may inhibit growth, said Paul Vrouwes, who helps oversee about 362 billion euros, including UniCredit shares, at ING Investment Management in The Hague.

“The foundations’ power makes it problematic for Italian financial firms to compete in a global context in general,” said Vrouwes. “It may be a drain on performance.”

To contact the reporter on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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