Matteo Arpe, once the youngest chief executive officer of a major European bank, is vying to run Italy’s oldest cooperative lender after bad loans almost wiped out its profit in the second quarter.
For Arpe to be successful, he needs to persuade thousands of investors voting on a new Banca Popolare di Milano Scarl (PMI) board tomorrow. It’s not just institutional shareholders such as Fidelity Investments and Vanguard Group that the executive must convince, because investors are limited to one vote each no matter how much stock they own.
Arpe, who more than quadrupled the market value of Rome- based Capitalia SpA in his four years as CEO, is pitted against Andrea Bonomi, chairman of buyout firm Investindustrial SpA, who favors the bank’s existing reorganization plan. At stake is Popolare di Milano’s ability to replenish capital after taking government aid and reporting a 98 percent decrease in second- quarter earnings on higher loan losses. Italy’s sixth-largest lender by assets fell to a record low last month and is valued at 709 million euros ($973 million), less than it’s seeking to raise from investors.
“I’m not underestimating the challenge, also given the market conditions in the European banking industry,” Arpe, 46, said in an interview yesterday. “On the other hand, Popolare di Milano has a strong local network with a very strong retail franchise.”
Banca Popolare di Milano’s shareholders will vote tomorrow on adopting a dual-committee structure, as well as naming the supervisory board members. The supervisory body will then appoint a five-member management board, which Arpe said he is willing to join. The management board names the CEO.
The lender, which has about 56 billion euros of assets, scaled back in September the amount it’s seeking to raise in a rights offer after investors balked at backing the existing management. Investors are shunning Italian banks on concern they may have to take losses on holdings of the nation’s sovereign bonds as the region’s debt crisis spreads. Popolare di Milano has slumped 35 percent this year.
The Bank of Italy, the country’s central bank, demanded the bank review its governance to separate management from shareholder control. Chairman Massimo Ponzellini was appointed in April 2009.
Arpe, now chairman of Milan-based Banca Profilo SpA, which is controlled by his investment fund Sator Group, said he wants to boost management’s independence. “I’ve made myself available to be a part of the management committee provided there is a real and uncompromising change in the governance, drawing a clear line under the old way of doing things in which external associations compromised the bank’s independence,” he said.
Arpe said he’s willing to inject capital into the bank if those conditions are met, and has no intention of cutting staff.
Daily newspaper la Repubblica has reported that a labor group known as Amici controlled management and appointments within the firm through a secret agreement. The company, in a statement on Oct. 19, denied such conduct. Italian newspapers also have reported that some backers of lists for the supervisory board may be acting in concert, violating the law.
It was Amici who called on Bonomi to step in as an investor and lead the bank, the executive told reporters in Milan on Oct. 17. Bonomi says he can turn around Popolare di Milano like he did motorcycle maker Ducati Motor Holding SpA, which is owned by Investindustrial.
“Change needs to come internally,” said Bonomi. “First it needs capital to rebuild confidence and then it needs an independent management,” he said. “It doesn’t need the Arpe tsunami. There’s no interest in Popolare di Milano changing its course.”
Bonomi, who already owns at least 2.7 percent of the bank, and Arpe are each willing to invest up to 200 million euros in the company to demonstrate their commitment. Bonomi would be named to the management board by supervisory board candidates who are competing with the list that favor Arpe.
The two would-be managers have different strategies, according to Alessandro Frigerio, a fund manager at RMJ Sgr in Milan.
“Bonomi would relaunch the bank without changing the course too much, while Arpe would pull out all the stops,” said Frigerio, who doesn’t own shares in Popolare Milano.
“This is a typical Italian situation that we’ve seen in the past: the same people responsible for the current crisis are presenting themselves as the saviors,” Arpe said. “The bank above all needs a new managerial approach to restore credibility.”
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