Italian Bank Foundations Under Siege on Overhaul Push
Italy’s banking foundations, the biggest shareholders in the country’s financial industry, are under siege as their leaders gather in Rome today.
Bank of Italy Governor Ignazio Visco wants them to loosen their grip on management. The International Monetary Fund has urged an overhaul of an ownership structure vulnerable to cronyism. In the last 12 months, their appointees at the banks were ousted in Genoa and probed by prosecutors in Siena.
“In Italy, to understand the banks you don’t have to be a financial analyst, you have to be a political analyst,” Francesco Galietti, founder of Rome-based research firm Policy Sonar, said in an interview.
Banking foundations are a particularly Italian institution. The 88 non-profit groups, some of which trace their origins back more than 400 years, were entrusted with the ownership of Italy’s banks when they were sold by governments in the 1990s. Their mandate was to support the lenders as they consolidated and gradually opened to new investors. Banks’ dividends funded foundations’ charitable activities.
The near failure of Banca Monte dei Paschi di Siena SpA, the world’s oldest bank, highlighted shortcomings of the system.
“The MPS situation made it explicit to everyone that this is something that can’t last forever,” Antonio Guglielmi, a London-based analyst with Mediobanca SpA (MB), said in an e-mail. “Things will hopefully start moving now because denial is not justified by what happened.”
Leaders of the foundations, which together own about 20 billion euros ($27 billion) of bank stock, according to their association, ACRI, met today in Rome for their 2013 convention. The annual event is typically a moment to celebrate achievements in their twin roles of providing stable ownership to banks and supporting communities.
This year, as Visco applies pressure, was a little different.
The 63-year-old central banker called on foundations in a July 10 speech to loosen their grip on management and diversify their holdings away from the financial sector. He praised the foundations for their capital support during the financial crisis, while saying their influence may interfere with business decisions and deter hiring the most qualified managers.
“Significant progress on these issues must be made in a timely way,” Visco said in today’s speech. “The foundations should have diversified their portfolios to reduce their dependence on their banks. Some haven’t done this. All must comply.”
The central banker reiterated foundations must not interfere with bank business decisions or stand in the way of competent personnel. Visco, a member of the European Central Bank’s governing council, also urged the government to maintain budget rigor and said the Italian banking industry doesn’t have large capital needs.
The push for governance reform comes at a crucial time for a hobbled banking industry. The country’s two-year recession has hampered UniCredit SpA (UCG), Intesa Sanpaolo SpA (ISP) and smaller rivals just as the European Central Bank prepares to administer asset reviews.
The foundations have helped the banks through the downturn, underwriting 7.3 billion euros in capital increases from 2008 through 2012, according to ACRI. Still, the IMF suggested in a report last month that their sway on lending has a dark side.
“Foundations are subject to strong political influence,” the IMF said in a Sept. 6 report. Non-performing loan ratios are 2 percentage points above the industry average at the 14 banks that are at least 50 percent held by foundations, the IMF said.
ACRI is asking its members to bring their statutes into line with guidelines it published in April 2012 aimed at cutting down on potential conflicts of interest. ACRI Chairman Giuseppe Guzzetti said in his speech today that he agrees foundations should diversify their holdings and refrain from influencing bank business decisions. Still, he was defiant against their roles as investors.
“We will not allow anyone to take away our rights as shareholders,” Guzzetti said.
The boards at foundations are mainly selected by representatives of politics, business and social groups in the communities where they are situated. At Turin-based Compagnia di San Paolo, the city picks two board members and the local chamber of commerce picks two. The board is rounded out with selections by regional authorities, local academies and institutions in neighboring Genoa and Milan as well as Rome.
Compagnia di San Paolo, the biggest investor in Milan-based Intesa, teamed with another foundation stockholder to renew 80-year-old Giovanni Bazoli’s mandate as chairman of the bank in April. Intesa, the product of mergers combining banks from Turin to Milan to Florence, is Italy’s No. 2 and has more than 23 percent of its stock held by five foundations.
Prosecutors are investigating Sergio Chiamparino, chairman of Compagnia, the second-biggest foundation, for concessions given to bars on the Po River when he was mayor of Turin from 2001 to 2011. The probe didn’t faze 450-year-old Compagnia, which owns almost 10 percent of Intesa. It rejected Chiamparino’s resignation this week.
Chiamparino, 65, denied any wrongdoing and said he will cooperate with prosecutors.
Three foundations together own about 9 percent of UniCredit, the largest Italian bank, which broadened its shareholder base by buying Germany’s HVB in 2005. At Siena-based Monte Paschi, one foundation owns 38 percent of the bank and has been criticized for its oversight. Giuseppe Mussari, the former chairman who went on trial last month for obstructing regulators, was head of the Monte Paschi Foundation before taking his role at the lender.
In Genoa, where the local foundation owns 49 percent of Banca Carige SpA (CRG), Chairman Giovanni Berneschi was replaced on Sept. 30 after poor results.
“Foundations have in many cases spurred Italian banks to expand and modernize,” the IMF said. “More effective corporate governance will ensure that banks can play a supportive role to the economy and contribute to broader financial stability.”
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