Fazio under fire

Italian banks

Jul 28th 2005 ROME
From The Economist print edition

New controversy over Italy's contested bank bids

IT SEEMED that it was all over bar the shouting. On July 22nd Spain's Banco Bilbao Vizcaya Argentaria (BBVA) abandoned its bid for Banca Nazionale del Lavoro (BNL). Three days later ABN Amro of the Netherlands said its attempted takeover of Antonveneta, another Italian bank, had also failed. The battle for control of these two mid-sized banks, which dragged on for four increasingly bitter months, appeared over, leaving Fortress Italy intact.

But more is now at stake. Antonio Fazio, governor of the Bank of Italy, is in trouble up to his eyebrows. Gianpiero Fiorani, the boss of a home-grown rival bidder for Antonveneta, Banca Popolare Italiana (BPI), is a friend of his. Leaked transcripts reported in the press of telephone conversations between the two tapped by government investigators suggest that the governor may have been less than neutral in his handling of the bids. There are now calls, predictably, for him to resign. On July 27th Consob, Italy's market regulator, suspended BPI's bid for Antonveneta as a “precaution”. How did things go so wrong?

For a while, the Spanish and the Dutch looked well placed to breach Italy's banking establishment. The boards of BNL and Antonveneta had endorsed their bids. Mr Fazio had given them permission to increase their stake beyond 20%. And the EU Commission had approved both offers.

Yet behind the scenes, protectors of the banks' italianità mobilised their defence. Failing to convince one of Italy's big banks to step in as a white knight, they turned to weaker institutions.
One was Unipol, a Bologna-based insurer. Unipol increased its stake in BNL to about 15%. It also recruited shareholders led by Stefano Ricucci and Francesco Caltagirone, two rich property developers, who had bought nearly 30% of the bank. On July 18th Unipol offered cash on the barrel for BNL, financed by a capital increase, debt and asset sales.

The other was Mr Fiorani's BPI, formerly known as Banca Popolare di Lodi. In spite of its anaemic finances, BPI launched two separate bids for Antonveneta, including an all-cash offer.
This was after criminal investigations had been started into possible securities-laws violations.

It was in connection with these probes that telephone conversations were tapped. Mr Fiorani was delighted when Mr Fazio called him on July 12th to break the news—before making it public—that BPI's bid had got the go-ahead. According to Italian press reports of that particular chat, an emotional Mr Fiorani replied that he would kiss his friend “Tonino” on the forehead to thank him if he could. Mr Fazio himself may feel less warmly now.

Usually, a company has to prove that it has enough capital before its bid is approved, says Alessandro Roccati at Fox-Pitt Kelton, an investment bank. Analysts estimate that BPI was short about €1 billion ($1.3 billion) when it announced its offer.

In all this sorry mess, the only winners are the property developers who made some €900m from the sale of their stake in BNL to Unipol. The losers include Italian consumers, the country's reputation among foreign investors and, now, the credibility of Italy's central bank.

Italians pay their banks much higher annual fees and commissions than other Europeans. Opening an account can require filling out more than a dozen forms; closing one costs a hefty fee. Without foreign competition, Italians will continue to be ripped off, says Davide Serra of Morgan Stanley, an investment bank.

Neither BBVA nor ABN Amro intends to remain a minority shareholder in its erstwhile target, so big chunks of capital will leave the country at a time when Italy's recession-hit economy desperately needs liquidity. ABN Amro's stake in Antonveneta is worth about €2.3 billion, and BBVA's shares in BNL would sell for around €1.2 billion.

Most damaging is the perception abroad of a chaotic tug-of-war between rogue investors, regulators and the judiciary. “We have generated a situation of enormous speculation under the motto ‘take the money and run',” says Luca Cordero di Montezemolo, head of the Confindustria, the employers' association.

Consob has ruled twice that BPI improperly acted in concert with other shareholders.
Moreover, on July 25th, prosecutors confiscated the shares owned by BPI and ten investors (including Mr Ricucci), amounting to some 41% of Antonveneta's stock. If these shares were to come to the market, ABN Amro, which technically has control of the board now, could become the majority investor by buying its opponents' stakes. Yet having met with such hostility, the Dutch may turn their attention elsewhere.

This is not the end of cross-border bank mergers, says Armin Polster of Deutsche Bank, but banks are now likely to give Italy the same cold shoulder that they themselves received—at least until it's clear whether Mr Fazio should be in charge.

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