Dutch courage pays off

Sep 15th 2005
From The Economist Global Agenda

Italy is about to get its first big cross-border bank takeover, despite manoeuvres by its central-bank chief to keep the target in Italian hands. This is good for Italy, whose reputation as a place in which to invest has taken a battering, and also for Europe's single currency

AFTER seven months of bitter wrangling, the saga of the takeover of Banca Antoniana Popolare Veneta (Antonveneta) looks all but over. Late on Wednesday September 14th, after a marathon meeting, the board of Banca Popolare Italiana (BPI) announced that it favoured the sale of its 29.5% stake in Antonveneta, Italy’s ninth-largest bank, to ABN Amro of the Netherlands for about €2.5 billion ($3.1 billion). The Dutch bank, which already owns a similarly sized slice of Antonveneta, is keen to acquire BPI’s stake as well as the remaining shares. According to Reuters news agency, Italy’s financial regulators have already given their informal approval to the deal, which could be completed as early as next week.

Assuming the sale goes ahead, it will herald Italy’s first big cross-border bank takeover. ABN Amro looks set to win its prize despite the resistance of Antonio Fazio, the governor of the Bank of Italy, who has blocked foreign attempts to buy domestic banks throughout his 13-year tenure. Another foreign bid, by Spain’s Banco Bilbao Vizcaya Argentaria for Banca Nazionale del Lavoro (BNL), failed in July. This week Consob, Italy’s financial-market watchdog, approved a €4.9 billion bid for BNL by Unipol, an Italian insurer. The central bank and the insurance regulator are expected to approve the deal as well.

Mr Fazio has not only lost the battle for Antonveneta. Through his manoeuvres to keep Antonveneta in Italian hands he has damaged the Bank of Italy’s hitherto fine reputation. He has little credibility as an impartial overseer of Italian banking. And he has frustrated foreign investors at a time when the Italian economy could do with interest from abroad. Of the developed economies included in The Economist’s poll of forecasters, Italy’s is the only one expected to contract this year (by 0.2%). Moreover, despite several rounds of domestic consolidation, the banking sector remains fractured and inefficient.

The battle for Antonveneta started about seven months ago when ABN Amro launched a bid for the bank. As soon as Antonveneta’s board had accepted it, BPI stepped in, pulling every available string to thwart the Dutch. It increased its stake in Antonveneta to 29.5%, just below the trigger set by Italian law for a mandatory cash offer for the rest of the shares. It lent money to several Italian businessmen to buy shares in Antonveneta without disclosing the loans. At a shareholders’ meeting in April it teamed up with its allies to replace Antonveneta’s board with a new one friendly to itself. And in June it launched its own bid for the target bank.

Mr Fazio has denied all accusations that he has acted improperly. Still, all this happened on his watch. Moreover, telephone conversations tapped by magistrates, who suspected that BPI was breaking the rules and had placed Gianpiero Fiorani, its boss, under surveillance, suggest that Mr Fazio intervened time and again to favour BPI’s bid—even though the bank was only one-third the size of its target and much less healthy. BPI’s manoeuvres led to a judicial inquiry and to the suspension of both Mr Fiorani and BPI’s offer.

By reviving suspicions of a cosy, protectionist culture in the Italian elite, the affair has damaged the country’s reputation as a place in which to do business—just what Italy didn’t need as it clears up the mess left behind after the spectacular collapse of Parmalat, a family-controlled dairy group. The tussle over Antonveneta has implications not just for prospective investors in Italy, but also for the Europe’s single currency, which relies for success on increasingly free movement of capital.

Now Mr Fazio is facing almost daily calls to resign. Italy’s deputy prime minister and finance minister are among those who have called on him to go. The prime minister, Silvio Berlusconi, has been more circumspect, but he has also indicated that Mr Fazio no longer has his support. However, some members of Italy’s coalition government continue to back the central banker. Indeed, the affair has highlighted splits in the coalition which frustrate decisions. Its political effects have been almost as big as its financial ones.

The affair has also taken Italy’s politicians into uncharted legal waters. To the intense frustration of those who want to see the back of him, the law gives Mr Fazio life tenure. He can only be dismissed by the Bank of Italy’s 13-man Superior Council, which is composed of senior businessmen, academics, lawyers and economists. The government decided a few weeks ago to curtail the power of any successor when Mr Fazio does eventually leave, one way or another. The proposed changes are now being scrutinised by the European Central Bank (ECB).

Although the ECB’s role in this matter is purely consultative, if it thinks legal changes undermine the independence of a national central bank, it can challenge them in the European courts. The ECB’s president, Jean-Claude Trichet, told a European parliamentary committee this week that impulsive legal changes to oust a central banker could set a “catastrophic precedent”. However, Mr Trichet went on to point out that Italy is the only developed country which appoints its central-bank chief for life. This suggests he will not try to block moves to limit the term.

Whether Mr Fazio goes soon or not, foreign banks have something to cheer. With the central-bank governor’s wings clipped and ABN Amro’s success in sight, they ought to feel emboldened to take another look at Italy’s fragmented banking sector.

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