02 January, 2014

Italy Bank Mergers & Acquisitions (Sanpaolo IMI)

Photo: A quasi-banknote that was issued by Istituto Bancario San Paolo di Torino in the 1970s.

Sanpaolo IMI SpA

As a banking holding company, Sanpaolo IMI had a very brief existence.  It was created in 1998 and in 2007, it merged with Banca Intesa to form Intesa Sanpaolo.  However, like many Italian banks, some predecessors of Sanpaolo IMI can trace their histories back over four centuries to the Italian Renaissance period. Sanpaolo IMI was formed from four regional banking groups: Istituto Bancario San Paolo di Torino, Istituto Mobiliare Italiano, Cardine Banca and Banco di Napoli.

A Few Words about Italian Banks’ Renaissance Origins

Many Italian banks can trace their histories to as far back as the 15th century when local municipalities or the Roman Catholic Church established individual monti di pietà (“mounts of pity”, or “mounts of compassion”) as charitable foundations that granted small loans to the poor in return for collateral. The goals of the monti di pietà are to fight usury and poverty, to encourage savings and improve the social conditions of the poor, as well as to stimulate economic development. In many cases, the monti di pietà also accepted deposits and re-lent the funds to borrowers.

Over the centuries, many of these charity lenders became casse di risparmio (savings banks) but maintained their original social mandates of charity for the poor, as well as to promote art, education, health, scientific research; to conserve cultural and religious heritage; or to develop public utilities.  The unique dual objectives of Italy’s savings banks, while honourable, created a banking system that was backward, fragmented, bureaucratic, unprofitable and uncompetitive.

As the European Union prepared to break down trade barriers based on national borders in the 1990s, it was clear to the Italian government that its fragmented banking system would be taken over by the much larger and efficient banks from Great Britain, France and Germany.  A series of banking reform acts, most notably the Amato Act of 1990 and the Ciampi Act of 1998, were implemented to privatize the state-owned or public-law banks and to foster amalgamation of the regional banks into much larger national banks.

Istituto Bancario San Paolo di Torino SpA

The Sanpaolo side of Sanpaolo IMI is one of the oldest credit providers in the world.   In 1563, a brotherhood known as the Compagnia della Fede Cattolica sotto l’Invocazione di San Paolo was established in Torino (Turin). A few years later, the charity founded a Monte di Pietà (singular of monti di pietà) to provide charitable loans at low-interest rates to the poor on the pledge of personal belongings as explained earlier.

The Monte di Pietà di San Paolo provided an alternative to usury, particularly for Turin’s tradesmen and artisans, and marked the beginning of San Paolo’s long history as a credit provider.  During the Renaissance period, Turin was a major trading centre in Europe, and San Paolo grew in importance such that by the second half of the 17th century, it was granted the administratorship of the public debt for the Savoy region. 

By the 19th century, San Paolo had evolved into a lender in the modern banking sense.  It rode on Northern Italy’s rapid transformation into an industrial economy and became a leading bank.

The 20th century was a turbulent one for Italy: in 1911, the Italo-Turkish War broke out, to be followed by World War I, both of which depleted Italy’s coffers.  In 1921, when a major industrial-financial conglomerate (Ansaldo Group-Banca Italiana di Sconto) failed, the Italian state intervened and rescued the group, commencing the country’s long history of injecting state funds to rescue failing industries.   Then in 1922, Benito Mussolini took over the country and began his fascist dictatorship.  By the 1930s, poor administration combined with the international economic depression led to the failures of many Italian enterprises. In 1933, the government stepped in and created IRI (Istituto per la Ricostruzione Industriale) to take over several major ailing banks.  The 1936 Banking Act then set strict regulations on the banks’ operations.  Stunningly, about 80% of Italy’s banking sector was directly or indirectly run by, or relied upon the government for capital, and this practice only ended in the 1990s. 

During the 1930s, Istituto Bancario San Paolo di Torino itself became a public-law bank, which means that it had no outstanding share capital and relied on customer deposit as its sole capital base.  Technically the Italian Treasury was the resort should additional capital be required, but in reality all Italian state-controlled or public-law banks had little access to capital for decades until they were privatized in the 1990s.

Fascist Italy suffered further setbacks when it joined Nazi Germany in declaring war on France, Great Britain and the United States in 1940.  Mussolini financed the war machine by basically revving up the money-printing machines, which led to hyperinflation and a collapse of the Italian lira.  Following the war, Italy continued to suffer from high inflation, slow economic growth, a weak currency, and perpetual budget deficits. The government’s response was to impose more restrictions on money supply, lending and foreign exchange.  Over time, Sanpaolo di Torino nevertheless became the leading retail bank in northwestern Italy.

Reforms were finally brought in in 1982 when the IRI began to raise funds by issuing bonds to re-capitalize its state-owned banks. In 1990, in preparation of a “single-market” economy within the European Community, further changes were introduced when Italian banks were required to restructure into the joint-stock company model (with limited liabilities) from their public-law status. In 1992, San Paolo di Torino officially became Istituto Bancario San Paolo di Torino SpA, and 21% of the shares were floated publicly.

Istituto Mobiliare Italiano SpA (IMI)

Compared to other Intesa Sanpaolo constituents, Istituto Mobiliare Italiano's establishment in 1931 was decidedly contemporary.  As mentioned earlier, Italy’s large commercial banks became insolvent in the late 1920s as the economy faltered.  New government regulations then forbade the commercial banks from making medium- and long-term loans to Italy’s enterprises.  The government then created the Istituto Mobiliare Italiano to provide medium- to long-term financing to Italy's struggling industries. In 1947, IMI took on the additional responsibility of managing and coordinating foreign aid in rebuilding Italy following World War II.

Over time, IMI became a state-owned merchant and investment bank: making long-term loans, subscribing to equity stakes, and underwriting securities for corporate Italy.

In 1991, like other state-owned or public-law financial institutions, IMI was converted to the joint-stock form and became Istituto Mobiliare Italiano SpA.  In 1994, IMI was listed on the stock exchange as a final step towards a full private-sector bank.

 Holding Cardine Banca SpA

The components that eventually became Cardine Banca are too numerous and small to be explained in details in this publication, and only a brief summary of the bank’s genealogy will be provided.  In 1822, savings banks Cassa di Risparmio di Padova and Cassa di Risparmio di Rovigo were established in the Italian-speaking Veneto region of the Habsburg Empire.  In 1928, they consolidated into the Cassa di Risparmio di Padova e Rovigo.  In 1994, C.R. di Padova e Rovigo joined forces with Cassa di Risparmio di Venezia (founded 1822) and Banca Agricola di Cerea to become the Casse Venete group.  In 1998, yet two more savings bank, C.R. di Gorizia and C.R. di Udine e Pordenone, joined the Casse Venete group, which by now is a major regional bank in the northeast corner of Italy.

Meanwhile, along Italy’s Adriatic Sea coast, the Banca Popolare Pesarese was established in 1875.  It in 1989 merged with Cooperativa di Bagnacavallo to form the Banca Popolare Pesarese e Ravennate.  In 1994, Banca Popolare Pesarese e Ravennate combined with Banca Popolare Abruzzese Marchigiana and took up the new name of Banca dell’Adriatico.   In 1997, Banca dell’Adriatico became an “SpA” when it obtained joint-stock status.

In the Emilia-Romagna region, influential civic leaders with the support of the Catholic Church founded the Cassa di Risparmio in Bologna in 1837.  To comply with the Amato Act, C.R. in Bologna became a joint-stock company and a parent company known as Gruppo Bancario Casse Emiliano Romagnole SpA (or CAER for short) was formed in the early 1990s.  In 1997, a frenzy of regional bank mergers saw CAER acquiring Banca dell’Adriatico.

In 2000, the Casse Venete group merged with the CAER group and adopted the new name Holding Cardine Banca SpA.  The bank’s network spanned the entire northern Italy.

Banco di Napoli SpA

Banco di Napoli can loosely trace its history back to the 1539 founding of a Monte di Pietà in Naples as a philanthropic pawnbroker.  Between 1587 and 1640, another seven credit institutions were established in southern Italy, and these eight banks eventually became Banco Nazionale di Napoli in 1794.  During the 19th century, military conflicts in the Italian peninsula led to the bank’s shutdown and reorganization under a different name.  When the various warring city states were unified into the Kingdom of Italy in 1861, the modern Banco di Napoli was reborn.

In 1926, the bank was turned into a public-law institution following the decade-long economic crisis.  In 1929, it consolidated several other ailing banks, becoming the largest bank in southern Italy.

During the early 1990s, the bank’s poor governance and another prolonged economic slump once again made Banco di Napoli financially unstable just ahead of the launch of EU’s “single-market” model and dismantling of trade and economic protection based on national borders.  A series of reforms was carried out, starting with the 1991 conversion of Banco di Napoli into the “SpA” joint-stock format.  The Italian government then stripped out the bank’s bad loans into a “bad bank,” to be managed and wound down gradually.  Meanwhile, the Treasury injected billions of new capital into the bank and transferred its administration and ownership to the newly-privatized insurer Istituto Nazionale delle Assicurazioni (INA, for 51%) and Banca Nazionale del Lavoro (BNL, for 49%).

Recent transaction(s):

  • In 1998, Istituto Bancario San Paolo di Torino SpA acquired Istituto Mobiliare Italiano (IMI) SpA to form Sanpaolo IMI SpA, becoming the largest bank in Italy at the time.
  • In 1999, Sanpaolo IMI launched a hostile offer for Banca di Roma SpA for Eur 7.5-billion (USD $8.2-billion) but Sanpaolo IMI's bid failed.
  • In 2000, Italian insurance giant Assicurazioni Generali SpA launched a Eur 12.2-billion (USD $13.0-billion) hostile bid to acquire rival Istituto Nazionale delle Assicurazioni SpA (INA).  Sanpaolo IMI had previously pursued a friendly combination proposal with INA to create a bancassurance giant.  Eventually, Sanpaolo IMI agreed to let INA merge with Generali, in return for acquiring INA’s 51% stake in Banco di Napoli.  Sanpaolo IMI subsequently launched an offer to acquire the 49% of Banco di Napoli held by Banca Nazionale del Lavoro.
  • In 2001, Sanpaolo IMI bought a 10.9% stake in Holding Cardine Banca for ITL 1-trillion (USD $450-million). Cardine was the result of the merger between Casse Venete and Casse Emiliano Romagnole (CAER).
  • In 2002, Sanpaolo IMI bought the remaining stake in Cardine Banca for USD $5.4-billion.
  • Between 2000 and 2005, Sanpaolo IMI acquired a controlling stake in Cassa dei Risparmi di Forlì.
  • In 2006, Sanpaolo IMI bought 87% of Panonska Banka from the Serbian government for Eur 122-million. Panonska Banka had 65 branches.
  • In 2006, Sanpaolo IMI bought 80% of Egypt’s Bank of Alexandria from the Egyptian government for USD $1.6-billion. Bank of Alexandria had 188 branches and a 6.8% market share in the country.
  • In 2007, Sanpaolo IMI was taken over by Banca Intesa for Eur 31.5-billion (USD $40.0-billion).  The new company became known as Intesa Sanpaolo.

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