Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Western EuropeMay 4 2010

Friends in need

Italy's philanthropic foundations remain significant shareholders in the country's banks, which has helped them ease their way through the economic crisis and maintain a long-term growth strategy. Writer David Lane
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Friends in need

It was not meant to be like this. The philanthropic foundations that own substantial stakes in Italian banks should have continued to diversify away from the sector. Instead, some have found themselves pumping huge sums of money back in, weighting their investment portfolios still further towards bank stocks.

"UniCredit has been able to count on the support of the [philanthropic foundation] Fondazione Cassa di Risparmio di Torino [CRT] and on various occasions, particularly in difficult times, the foundation has provided the bank with fresh capital," says Angelo Miglietta, a university professor of economics who, as secretary-general, heads the operational side of the Fondazione CRT, which has a 3.7% stake in UniCredit.

As UniCredit came under pressure around the end of 2008, the foundation put in €567m cash and a further €170m by buying new shares. "But the relationship has been profitable for both of us over the years, the bank providing dividends that have fuelled the foundation's grant-giving," says Mr Miglietta.

As financial meltdown threatened in autumn 2008, bank shares were not the best investment - not even those of Italian banks, which were among the least affected by the crisis in Europe. In September that year UniCredit's shares traded at about €3, while those of Intesa Sanpaolo, the country's other giant bank, traded at about €4. By year-end, shares in UniCredit had fallen to €1.5 and those of Intesa Sanpaolo to just over €2. A similar shock hit the shares of Monte dei Paschi di Siena (MPS), the country's third largest bank, which plummeted in 2008 from about €4 to less than half of that.

Setting the foundations

Bank share performance interested only a small number of Italians two decades ago, but since the mid-1990s it has meant much more to a greater number of people. Legislation passed in July 1990 required Italy's public sector banks - some 80 casse di risparmio, or savings banks, and six public law credit institutions - to spin off their banking activities into joint stock corporations, all the shares being owned by philanthropic foundations.

The Amato Law, named after the Treasury minister at the time, Giuliano Amato, was the start of an era of privatisation, with stock listings, takeovers and consolidation. During this process the foundation's original stakes of 100% were diluted. Only 15 foundations now have stakes of more than 50% in the bank where they originated, and with the exception of the MPS foundation, which owns 55.5% of the bank's voting capital, they are very small or are in the five Italian regions governed by special statute. Some 18 foundations no longer own any shares in the banks from which they originated.

About two-thirds of the Italian banking system was publicly owned before the Amato Law, a share now greatly reduced. Even so, the philanthropic foundations continue to be heavyweight shareholders in banks - and not just MPS and UniCredit, where such foundations have shares of more than 12%. Almost 25% of Intesa Sanpaolo is owned by foundations, five of them each holding more than 2%, with Turin's Compagnia di San Paolo the biggest with 7.7%, followed by the Fondazione Cassa di Risparmio delle Provincie Lombarde (Cariplo) with 4.7%.

The foundations have various philanthropic aims, depending on their statutes and how their boards decide to allocate resources. Scientific research, social services, support for cultural activities, education, sport and social housing are typical areas of involvement. The Fondazione Cariplo, for example, seeks to support non-profit bodies, and in 18 years has given €1.7bn in grants to more than 20,000 projects in which such bodies have been engaged. This Milanese foundation is one of the big five that together account for almost one half of the foundations' total endowments - the others are the Compagnia di San Paolo, the MPS and the two biggest shareholders in UniCredit, CRT and the Fondazione Cassa di Risparmio di Verona Vicenza Belluno e Ancona (Cariverona).

According to the Association of Italian Banking Foundations and Savings Banks (ACRI), to which the foundations belong, their total assets amounted to about €58bn at the end of 2008, the most recent year for which aggregate figures are available. Of this, 32.4% was investment in bank shares, against 25.5% the year before. ACRI's analysis shows that foundations made grants totalling about €1.7bn during 2008, mainly on supporting projects in their own cities and regions. The financial crisis posed a serious threat to philanthropic activities, especially in the north of Italy, which benefits from about two-thirds of total grant-giving.

Key figures at Fondazione Cariverona (Em)

Key figures at Fondazione Cariverona (Em)

Siena's exception

The province of Siena, and the wider Tuscan region, is a geographical exception, being in central Italy where the MPS is the local power. About €420m of its total income of €544m in 2008 was the dividends of fiscal 2007 from the bank. The foundation was due to publish its accounts for 2009 as The Banker went to press, and the position is far less rosy as dividends were a fraction of those paid the year before.

"The effects of the financial crisis will be seen this year and next," says Marco Parlangeli, Fondazione MPS's director-general. And what the foundation does is important even in a province blessed by wealthy tourists and expensive wines; in 2008 Siena owed some 3% of its GDP to the foundation's grants.

Figures from the Fondazione Cariplo show the impact of the stockmarket collapse and the sharp fall in banking shares. Its net assets at market value slumped from €8.2bn at year-end 2007 to €6.5bn one year later, although they had recovered to almost €7bn at the end of last year. Meanwhile, income fell from €461m in 2007 to €100m in 2008, bouncing back to €329m last year. The accounts of the Cariverona foundation, which has a 5% stake in UniCredit, also tell of the devastation of the past three years.

"The banking crisis has had a large impact on finances," says Mr Miglietta. Income slumped from €330m in 2007 to €273m in 2008 and €233m last year, and only a prudent long-term strategy of diversifying investments, boosting reserves and conservative grant-giving has prevented the foundation from running into difficulties. Indeed, it was able to increase its grant-giving to €175m last year from €129m in 2008.

In Cuneo, about 100 kilometres south-west of Turin, the Fondazione CRT, ranked eighth among the foundations and the third largest shareholder in Unione di Banche Italiane, the country's fourth biggest banking group, has also been prudent. While its net income fell from €75m in 2008 to €39m last year, at €23m its grant-giving last year was comfortably within that amount.

Since 1992 when, under the Amato Law, the foundation became the owner of Cuneo's savings bank and possessed net assets of €285m, it has diversified significantly and less than one-quarter of its €1.3bn net assets at the end of last year were tied up in the banks of which it became a part.

UniCredit ownership structure, March 2010

UniCredit ownership structure, March 2010

Means and ends

Making investments and giving grants are the two sides of the business of the foundations, poor investments meaning less scope for grants. "It's a matter of means and ends. How we invest and where we make grants both give rise to lively debate," says Mr Parlangeli, adding MPS needs to diversify and reduce its dependence on the Sienese bank.

Yet, according to its own articles of association, the foundation must guarantee that the bank keeps its head offices in Siena and that its chairman and the majority of its board live in the city or the province. The bank and the foundation are tightly entwined, but for Giuseppe Mussari, chairman of MPS bank, who describes the foundation as an excellent shareholder, this is an advantage. "It allows us to work with a long horizon, without pressure for short-term results and with respect for the strategies the bank decides," he says.

Corrado Passera, CEO of Intesa Sanpaolo, also emphasises the foundation's positive role, its long-term approach typical of institutional investors having been a crucial factor in restructuring the Italian banking system. "As a result of this long-term vision, banking foundations have guaranteed shareholder stability and provided Intesa Sanpaolo and the Italian banking system with a solid base. This solidity has allowed Italy to cope with the unprecedented economic crisis better than others," says Mr Passera.

Even so, relations between banks and their foundation shareholders, whose own boards are filled with local bigwigs and political appointees, raise questions about political interference and bank independence. Certainly, as the system has restructured, senior bankers have been keen to keep politicians onside. The choice of a dual-board structure at Intesa Sanpaolo was widely seen as a way of keeping both of the bank's large foundation shareholders happy.

At UniCredit, the creation of subsidiaries in Verona, Turin and Bologna provided jobs and posts in cities where its main Italian shareholders had once owned the savings banks that had themselves been centres of power and patronage. And subsidiaries exist in Rome (UniCredit Banca di Roma) and Palermo, where Banco di Sicilia has a foundation.

Alessandro Profumo, UniCredit's CEO, says that one lesson from the crisis is that structural complexity is damaging and that simplification is a necessity. The plan to eliminate the bank's seven subsidiaries will cut that same number of chairmen, managing directors and about 80 board members, as well as achieving savings of several hundred million euros. The delay in getting a new structure approved - the merger of the subsidiaries eventually won board approval on April 13 this year and should become effective on November 1 - was due mainly to the reluctance of Cariverona.

The past two years have been a harsh lesson in how markets work to all shareholders, not least to the foundations that have had far less money to disburse, as the figures for the Cariverona clearly show. And less money means more disappointed applicants for grants and less kudos for the political appointees who make the decisions.

Italian banking has progressed considerably since the years before the Amato Law, when banks' boards were determined by politicians alone. But the headlines in Italian newspapers on April 15 saying the xenophobic Northern League - the driving partner in Italy's right-wing government - intends to get its hands on the northern banks, shows that political risk has not disappeared.

Was this article helpful?

Thank you for your feedback!

Read more about:  Western Europe , Italy