Italy banking: Status symbols

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Investors can support their local lenders by preparing to sell them.

Italian entrepreneurs looking to secure their status as a pillar of the local establishment can either buy a newspaper or a local bank. Think of the Agnelli’s ownership of La Stampa, for example. 

Newspaper owners can seek power through their outlet’s ability to influence opinion and to give or withdraw support for political leaders. However, newspapers do not make much money anymore and their political influence is diminishing in line with the rise of digital media and populism. 

Are banks in the same category? Both their status and financial benefits are increasingly hard to justify. 

Vittorio-Malacalza-getty-160x186
Vittorio Malacalza
It is easy to imagine that Vittorio Malacalza, the head of a wealthy family group in Genoa, might have had other motivations than profit when he became the largest shareholder in Liguria’s regional financial champion, Banca Carige, in 2015. He bought his initial 10.5% stake from one of Italy’s charitable banking foundations when it could no longer patch up the holes in the lender’s balance sheet. The collapse of Carige’s shares since then has not made the investment financially attractive so far.

In Carige’s recent capital raising, Malacalza portrayed himself as a defender of the region and its bank. His commitment was crucial to secure underwriting and to bring in local retail investors in a €544 million rights issue, which almost flopped. Such a sense of regional loyalty and ownership is a key part of the franchise of many regional banks across Europe, not just Carige.

Helping to recapitalize a bank might win local favour by protecting a financially vulnerable organization that plays an important economic and social role in the community. In this respect, a regional bank might be more like a local football club (and indeed two of Carige’s four core shareholders own football clubs in Liguria).

Contradiction

And yet there is a contradiction. Regional banks’ chances of making a profit in Europe today mainly depend on efficiency, primarily their ability to shed regional jobs. And often the only way of giving shareholders a decent return will be to sell to a bigger bank, which might effectively close the regional base. 

Malacalza, meanwhile, seems to have had no time for regional or national protectionism in his other ventures. The cash to buy Carige came largely from the Genoese steel company he sold to a Russian firm in 2007. He was among those that sold iconic Italian tyre manufacturer Pirelli to the Chinese. 

Malacalza seems something of an establishment outsider given his strained relationships with Mediobanca over Apollo’s approaches to Carige and before that with Pirelli’s chief Marco Tronchetti Provera (then a Mediobanca board member).

Perhaps there was never a contradiction between business decisions that are politically and financially astute. Local favours and connections have helped regional businessmen make money in the past. 

In the case of Carige, Malacalza’s reputation as more of a profiteer than a patriot could actually spur smaller investors’ participation in the deal. Unlike the banking foundations, bound up in patronage and political manoeuvring, here was someone hard-headed and with skin in the game – investors would be more likely to back him.