24 October, 2009

Italy Bank Mergers & Acquisitions (Capitalia)

Photo: The London branch of Banca di Roma (a unit of Capitalia SpA) on Gresham Street. UniCredit SpA had just acquired Capitalia SpA for Eur 21.83-billion when I took this photo in September 2007.

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Capitalia SpA was taken over by UniCredito Italiano (now UniCredit) in 2007.

A Few Words about Italian Banks' Renaissance Origins

Many Italian banks can trace their origins to as far back as the 15th century when city-states and the Roman Catholic Church established individual monti di pietà. The word monte (singular of monti) means "mount" in Italian, whereas pietà means pity or compassion. Hence, monte di pietà literally means the Mount of Compassion.

During the Renaissance era, these non-profit monti di pietà granted small loans to the underclass and small business owners on the security of collateral (in other words, pawning) at minimal interest rates. As such, these monti di pietà are also described as charitable pawn shops. Other than fighting usury and poverty by encouraging saving and offering low-cost loans, the mandates of the monti included preserving heritage as well as funding education, hospitals, science research, art and infrastructure.

Since the monti often also accepted deposits for safekeeping, and relied on this additional source of capital to fund more loans, they were essentially an early form of banks. As a matter of fact, during the 19th century, many of the monti di pietà were transformed into casse di risparmio (savings banks), though they maintained their various philanthropic mandates. These mandates, while commendable, created a fragmented banking system that was backward, inefficient, bureaucratic and sometimes, corrupt. In almost all cases, the monti di pieta and casse di risparmio continued to be state-controlled by the local government-Church authorities well into the 1990s, though a few private-sector commercial banks did exist, such as the Banca Commerciale Italiana, Credito Italiano and Banca di Roma.

As the European Union prepared to remove trade barriers between member nations in the 1990s, Italy’s fragmented and archaic banking system would be open up to other EU competitors with higher efficiency and more advanced technologies, such as those from Britain, Germany, France and the Netherlands. In order to create national banks strong enough to face the new competition, the Italian government passed two banking reform acts, namely the Amato Act of 1990 and the Ciampi Act of 1998 to privatize the state-owned banks and to foster amalgamation of the regional banks into much larger national banks.

The Amato Act required the savings banks (casse di risparmio) to separate their banking operations from the socially-mandated, non-profit charitable foundations. It also forced the savings banks to convert to the joint-stock form (i.e. public limited-liability company, known as SpA). Initially the shares of these newly-spun-off banks could still be held by the social foundations, but the Ciampi Act in 1998 prescribed that the majority shareholdings of the banks held by the social foundations must be sold off gradually. The goal was to ensure a transition towards a purely market-driven, private-sector banking industry away from its former non-profit nature with the dual objectives of providing banking services and promoting philanthropic causes.

Capitalia SpA

Monte di Pietà di Roma

The earliest constituent bank of the Capitalia group can be traced to the founding of the Monte di Pietà di Roma in 1539 by Pope Paul III to offer credit at low interest rates to Rome’s poor. Throughout the 1600s, Monte di Pietà di Roma’s money-dealing business increasingly resembled that of a 17th century bank. By the late 18th century, Monte di Pietà di Roma’s certificates of deposit were even accepted and circulated as payments similar to the modern use of banknotes.

Following the founding of the Kingdom of Italy in 1861, the Monte di Pietà di Roma came under the control of the Italian government. In 1937, a banking crisis resulted in the nationalization of the banking sector and the Monte was placed under the control of Cassa di Risparmio di Roma (see below).

Cassa di Risparmio di Roma

Cassa di Risparmio di Roma (Savings Bank of Rome) itself was created in 1836 by the city’s merchant families to promote thrift and long-term savings for the lower class. Like other savings banks in the period, Cassa di Risparmio di Roma was a non-profit institution. By the mid-19th century, it had grown to become Rome’s leading savings bank. In 1937, it took over Monte di Pietà di Roma’s administration and also began to expand outside of Rome.

Between 1989 and 1991, in compliance with the banking reform legislation (the Amato Act), social foundation Ente Cassa di Risparmio di Roma transferred its stake of Cassa di Risparmio di Roma to Banco di Santo Spirito. Banco di Santo Spirito originated in Rome in 1605 as another non-profit charitable lender but had been a joint-stock bank since 1923. The foundation Ente Cassa di Risparmio di Roma initially still controlled 87% of the newly-enlarged bank, with the remaining shares being held by government agency IRI.

Banca di Roma SpA (Gruppo Bancaroma)

Banco di Roma was founded in 1880 as a deposit bank for the Vatican and the middle-class and wealthy Romans. The bank quickly emerged as one of Italy’s prominent banks and opened branches in provinces outside of Rome. By the early 20th century, offices were opened in such Mediterranean countries as Libya, Egypt, Turkey, Palestine and Syria. In the 1930s, however, Italy’s economy and banking sector entered a long period of severe crisis. In 1933, Banco di Roma, Credito Italiano and Banca Commerciale Italiana were designated as “banks of national interest” and nationalized under a state-owned agency called the Istituto per la Ricostruzione Industriale (IRI).

Following World War II, Banco di Roma, Banca Commerciale Italiana and Credit Italiano in 1946 jointly established Mediobanca - Banca di Credito Finanziario, a specialized lender providing medium- and long-term financing to rebuild the devastated economy. Mediobanca’s direct equity investments in many of Italy’s most well-known industrial, commercial and financial services concerns made it a secretive, powerful and manipulative deal-maker in orchestrating mergers, blocking unwanted corporate advances, forcing business break-ups and even reinforcing oligopolies well into the 1990s.

Banco di Roma itself expanded internationally, but continued to suffer from a lack of capital and high loan losses, in large part due to its state ownership structure and constant government intervention. By the late 1980s, however, banking reforms in Italy could no longer be avoided as the European Union was poised to break down its trade barriers between member states to bolster efficiency.

Recent transaction(s):

  • In 1992, Banco di Santo Spirito (including the former Cassa di Risparmio di Roma), merged with Banco di Roma to form the new Banca di Roma. (In Italian, the word banco means a bench, but was later used to mean a bank, as money transactions in the Middle Ages were conducted in an open market on a bench. The word banca, however, is more commonly used to mean a bank in the modern sense.)
  • In 1998, Banca di Roma shares were floated on the stock market as a final step to transform the bank into a market-driven bank. In 1999, Sanpaolo IMI made a hostile USD $ 8.2-billion offer for Banca di Roma. But the Italian government was determined to prevent banks from the wealthy north from controlling the entire banking industry, and vetoed that proposal. Sanpaolo IMI (now Intesa Sanpaolo) was based in the northern city of Turin (Torino).
  • In 1999, Banca di Roma acquired one of the last state-controlled financial institutions MedioCredito Centrale (MCC). MCC was a bank created in 1952 by the Italian government to specialize in serving medium-sized businesses. It later also expanded into the investment banking market.
  • Also in 1999, Banca di Roma acquired Banco di Sicilia. The purchase gave Banca di Roma a significant presence in Sicily and southern Italy.
  • In 2001, Banca di Roma acquired a 10.3% stake in Italian bank Bipop-Carire for Eur 700-million (USD $617-million). Bipop-Carire was based in northern Italy.
  • In 2002, Banca di Roma bought out the rest of Bipop-Carire for Eur 3.7-billion (USD $3.26-billion). In the same year, Banca di Roma, Banco di Sicilia and Bipop-Carire decided to form a common parent company named Capitalia Gruppo Bancario SpA.
  • In 2007, Capitalia SpA was acquired by domestic rival UniCredit SpA (formerly UniCredito Italiano SpA) for Eur 21.83-billion (USD $29.47-billion).

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