28 June, 2011

Italy Bank Mergers & Acquisitions (Credito Italiano, UniCredit Page 1)

Photo: Architectural details above the entrance to an old Credito Italiano branch in Rome.

Photographer: Smeerch

You can view Smeerch's other photos via this link on flickr: http://www.flickr.com/photos/smeerch/

This page contains information on the genealogy of Credito Italiano up to its merger in 1998 with UniCredito to create UniCredito Italiano (now known as UniCredit SpA).

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. Since they 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. Other than fighting usury and poverty by encouraging saving and offering low-cost loans, the mandates of the monti di pietà included preserving heritage as well as funding education, hospitals, science research, art and infrastructure.

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 pietà 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 in Italy). 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.

Credito Italiano

Credito Italiano’s predecessor Banca di Genova was founded in 1870 by a number of Genoa’s prominent citizens. By 1872, the young bank had already established a subsidiary in Buenos Aires to provide trade finance between Italy and Argentina. However, the good times didn’t last long: Italy plunged into a serious economic and banking crisis in the 1890s and many banks failed. Banca di Genova “survived” only when several German banks stepped in to re-capitalize it in 1895 as Credito Italiano. By 1905, the re-born bank had opened branches in Rome, Florence and Naples. The bank relocated its head office from Genoa to Milan in 1907 and opened a London office in 1911.

Throughout the early 20th century, Credito Italiano attracted several prominent industrialists as major shareholders, including Giovanni Battista Pirelli, founder of the Pirelli rubber and telegraph cable maker, and Giovanni Agnelli (the senior), founder of the FIAT automotive empire.

In the 1920s, Credito Italiano made equity investments in several Romanian, Austrian, Czechoslovakian and Albanian banks. Towards the end of the decade, however, the global economy collapsed after the 1929 New York stock market crash. In 1930, at the request of the Italian government, Credito Italiano took over the ailing Banca Nazionale di Credito, the No. 3 bank in the country at the time.

In 1933, the worsening banking crisis was on the verge of collapse. The Italian government stepped in and named the top three banks (Banca Commerciale Italiana, Banco di Roma and Credito Italiano) as “banks of national interest.” They were then nationalized and placed under a state-owned holding agency called the Istituto per la Ricostruzione Industriale (IRI).

When World War II broke out, Italy under fascist Benito Mussolini’s regime joined Nazi Germany and Japan’s imperialist government to invade their neighbouring countries. Not surprisingly, all of Credito Italiano’s overseas operations were shut down.

Following the end of World War II, Credito Italiano, Banca Commerciale Italiana and Banco di Roma 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 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.

In the 1960s, as Italy’s economy and exports recovered, Credito Italiano needed new capital to finance its growing clients. In 1971, the three “banks of national interest” were finally allowed to list their shares on the stock market again. During the next 20 years, Credito Italiano expanded its international operations in London, New York, Moscow, Tokyo and Hong Kong.

In 1993, Credito Italiano became the first bank controlled by state agency IRI to be privatized when a majority stake of the bank was sold to the public.

Rolo Banca 1473

(Banca del Monte di Bologna e Ravenna, Cassa di Risparmio di Modena, Carimonte Banca, Credito Romagnolo)

In 1473, the senior officials of the Republic of Bologna and the Order of the Franciscans of Primitive Observance founded the Mons Pietatis Bononiensis, the predecessor of the Monte di Pietà di Bologna, which became the modern-time Rolo Banca 1473. Like other monti, its aim was to provide credit to low-income citizens and owners of small businesses at affordable interest rates, to encourage savings, to accept deposits and to offer safe-keeping of valuables.

By the 16th and 17th centuries, the Monte di Pietà di Bologna was also providing debt-collection, payment management, land dealing, and warehousing (for the storage of hemp, silk and grains) services, as well as tax-collection on behalf of the Bolognese government.

In 1795, the invading Napoleonic forces plundered northern Italy and confiscated the monte’s coinage and assets. Seemingly destined to collapse, Monte di Pietà di Bologna survived when many of its creditors voluntarily wrote off the debts owed to them, and when fellow monti in Genoa and Rome forwarded much-needed emergency funding to their counterpart in Bologna.

In modern times, the Monte di Pietà di Bologna once again suffered severe physical and financial losses during World War II, when many branches and warehouses were destroyed. Much of the population was also wounded, killed or displaced when fascist Italy battled the Allied forces. After World War II, banking legislation changes in the 1950s led the Monte di Pietà to adopt the new name Banca del Monte di Bologna.

Also tracing its history to the late 15th century, the Monte di Pietà di Ravenna was founded by the Republic of Venice in 1492 to offer an alternate to the Jewish private bankers who catered only to noblemen. Situated along the strategic ancient trade route in northeastern Italy, Ravenna and Venice both changed hands numerous times between rival empires throughout the Renaissance and Napoleonic periods. During the 1510s and 1790s, Ravenna was twice devastated by the French army. The Monte di Pietà di Ravenna suspended operations for months in 1795 when its coffers were ravaged by the Napoleonic forces.

In modern times, the monte obtained new classification as a bank and in 1956 adopted the name Banca del Monte di Ravenna. Just one year later though, it merged with Monte di Bagnocavallo and became known as the Monte di Credito su pegno di Ravenna e Bagnocavallo.

In 1965, Banca del Monte di Bologna and Monte di Credito su pegno di Ravenna e Bagnocavallo combined to form the Banca del Monte di Bologna e Ravenna. The new bank continued to expand in the next two decades and by 1983, operated a network of 60 branches. In 1988, for the first time in its 500-year history, the bank was partially floated publicly when shares were offered to private investors.

The third major predecessor bank that became Rolo Banca 1473 was the Cassa di Risparmio di Modena, which was established in 1846 by the city council. The savings bank gained independence from the Modena municipal government in 1888. C.R. di Modena had a history of directing part of their profits towards sponsoring social housing, university education and agriculture such as the local parmesan cheese makers.

In 1989, C.R. di Modena opened a representative office in Hong Kong, and in the same year, concluded a memorandum of understanding to combine with Banca del Monte di Bologna e Ravenna. The merger was finalized in 1991 and the new bank adopted the name Carimonte Banca SpA under a parent company called Carimonte Holding. Carimonte Banca combined the strength of 110 branches from the three historic banks from Bologna, Ravenna and Modena, all of which are within the northeastern Italian region of Emilia-Romagna.

The fourth major component of Rolo Banca 1473 was Credito Romagnolo, which traces its history to the 1896 creation of the Piccolo Credito Romagnolo in Bologna. The mandate of the bank was to extend credit (loans) to catholic aid societies, all levels of social classes, small merchants and farms, and to support a local catholic newspaper. The bank dropped the Piccolo name when it ceased to be co-operative and became a joint-stock bank in 1914.

Due to its close ties with the Catholic Church and the then ruling Christian Democrat government, Credito Romagnolo in 1982 was asked to participate in the re-capitalization of the Nuovo Banco Ambrosiano – the original Banco Ambrosiano had collapsed in 1981 under USD $1.3-billion of losses following a major political scandal involving the bank, the Mafia and the Vatican. Credito Romagnolo ended up subscribing to 10% of the Nuovo Banco Ambrosiano for ITL 60-billion (Italian lira), a stake which the bank eventually sold off between 1985 and 1989 for a total of ITL 82-billion. Nuovo Banco Ambrosiano eventually became Intesa Sanpaolo.

Credito Romagnolo’s operations expanded considerably in 1992 when it took over Banca del Friuli. The Italian banking sector entered a period of frenzy consolidations in the 1990s as smaller banks positioned themselves for the desired merger partners in preparation for increased competition.

Following lengthy discussions, Credito Romagnolo and Cassa di Risparmio in Bologna agreed to merge in 1994. In October, however, Milan-based Credito Italiano launched a hostile bid to acquire Credito Romagnolo on the condition that Credito Romagnolo and Cassa di Risparmio in Bologna broke off their merger plan.

C.R. in Bologna in late 1994 formed an alliance with several other Italian financial services firms IMI, Cariplo and Reale Mutua and made a new, joint offer for Credito Romagnolo. Determined to win Credito Romagnolo, Credito Italiano in early 1995 collaborated with Carimonte Banca and insurer RAS (Riunione Adriatica di Sicurtà) and returned with a higher offer. The Credito Italiano group eventually won Credito Romagnolo.

Following a complex restructuring, merger partners Carimonte Banca and Credito Romagnolo amalgamated their operations into a new bank called Rolo Banca 1473 in 1995, whose majority holding was held by Credito Italiano.

Finally in 1998, Credito Italiano and UniCredito agreed to merge to form the UniCredito Italiano (now known as UniCredit), a mega bank with a combined market value of USD $26-billion.

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