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Tremonti: the courts have driven him back to negotiating with the foundations |
The history of legislation on banking foundations in Italy is not a happy one. Successive governments have tried to stamp their mark, with the aim of eroding the foundations’ power. This government is no different. Finance minister Giulio Tremonti has tried to wrest a bit more influence from them and next month, or perhaps the one after, could be the moment of truth. That’s when the constitutional court will present its decision on whether the foundations must sell the shares they hold in banks. It isn’t difficult to see why what these bodies do interests the government. Between them, the 89 foundations hold almost e40 billion in assets, including big stakes in Italy’s banks. This ownership dates back to 1990, when the government decided to split savings banks into two in recognition of their different and sometimes conflicting functions. One body – the bank – became a joint-stock company responsible for financial operations. The other – the banking foundation – retained charitable status and a social role, maintaining cultural attractions and historical monuments for example.
The government wasn’t happy with this for long. It soon began to put pressure on the foundations to sell their stakes – ostensibly for the sake of greater transparency. In 1999, finance minister Carlo Ciampi passed a law giving the foundations with a majority stake in a bank until June 2003 to sell if they wanted to keep their charitable status. They could postpone selling until 2005 but would then lose all fiscal benefits.
But when Tremonti tried to get tough last year, and force the bigger foundations to stop dragging their feet and give up control, they turned to the courts to protect their rights. The courts ruled that the government had acted illegally. So it was back to the negotiating table.
Despite the fuss, most of the foundations have already given up controlling stakes. Only 20 still have control of a bank, according to the Italian savings banks and banking foundations association (ACRI). The only major bank where a foundation has a majority stake (of 58%) is Monte Paschi di Siena.
A critical flaw in the legislation, however, is that there is no rigorous definition of control. “The universally accepted definition of 51% does not apply in our law,” says Gabrielle Grasso, legal adviser at ACRI. “So 45%, 40% or even 30% can still count as a controlling stake”.
That’s where the trouble starts. It’s up to the Bank of Italy to decide what counts as control and it seems to consider any stake over 30% as significant. It’s not clear either whether shareholder pacts would fall under the ruling. Three foundations between them hold just over 30% in UniCredito. “Any measure of de facto control would catch them,” says one banker. “At the moment they can appoint a majority of the board and their permission would be needed if UniCredito wanted to merge with another bank.”
A bad time for a sell-off The foundations don’t see why they should have to sell valuable, strategic stakes at the whim of the Bank of Italy, however, particularly into today’s unhealthy markets. A 13.2% stake in UniCredito, for example, as held by the largest shareholder, the CRV foundation, could secure a large premium if sold at an opportune moment. “The government is asking us to get out at a time when no-one is going to be able to pay a strategic premium for our shares and the bank of Italy won’t let foreigners in,” says someone close to one of the UniCredito foundations.
So they’re looking for alternative solutions. One possibility is to convert ordinary shares to preference shares, or just pledge not to vote the shares held. Alternatively they could put stakes into an independently managed fund manager – as SanPaolo Imi has already done. These initiatives have not found favour with the government, though, because they don’t involve releasing any equity.
Behind the government’s protestations that more transparency is needed in banking, the foundations suspect it wants to get its hands on their wealth. Some of them have made good returns on bank shares, despite a common perception that they are bureaucratic dinosaurs. If they have to liquidize their banking assets, those gains could then be used to support the local community, relieving the pressure on the state.
“The government wants the foundations to sell and that is the core of the problem,” says Grasso at Acri. “We are fighting because the law defines foundations as private institutions to be managed independently.” Bankers agree that all is not as it should be in Italy’s free-market economy. “Either you allow the foundations to realize a strategic premium, even if that’s by selling to foreign acquirers, or you let them continue to be strategic shareholders,” says one.
But while the government continues to struggle with a budget deficit near the 3% limit, it’s unlikely to settle for either option.
