Monday, May 02, 2005

Italian narrowmindedness

In recent months two large European banks (BBVA and ABN Amro) started attempts to complete acquisitions in the Italian market (BNL and Banca Antonveneta, respectively). This would be an unprecedented move, as in the past the Governor of the Bank of Italy (Antonio Fazio) has always blocked such mergers and acquisitions. Now, however, he is under pressure from the EU Commission not to intervene. Instead he has done his best to interfere indirectly, with considerable success, by encouraging other Italian banks to rival the bids, because he doesn't want Italian banks to fall into foreign hands.
Most recently he has managed to get a good friend of his, the Chairman of Banca Popolare di Lodi, Giampiero Fiorani, to buy up shares in Banca Antonveneta, and yesterday BPL managed to replace the Board of Directors of Banca Antonveneta, which had accepted the ABN Amro bid, with one of its choice.
The reason why some people want to keep the banks in Italian hands is because, often at the behest of the government, they finance Italian industry, even when there is little chance they will get their money back. Deals are made in which debt is transformed into equity, so that if (or when) a company cannot honor its debts, the creditor banks become shareholders. It goes without saying that under these deals, which are explicitly intended to sponsor, or bail-out, struggling companies, there is no market justification to actually lend the money. At any rate, this practice has enabled the Italian government to continue to indirectly subsidize industry without incurring the wrath of the EU.
The flip side of the coin is that the money to support such operations must come from somewhere, and in this case it comes from the Italian bank customers: according to Capgemini Italian lenders charge the highest fees in the world.
Obviously, foreign banks will not go along with this disgusting sham of sponsoring companies that have no reason to exist in an efficient market (such as Fiat and Alitalia), and will charge lower fees forcing their Italian competitors to lower their fees too. According to the logic of Mr. Fazio (part of whose job, ironically, is to protect the Italian banking customer), this needs to be stopped at all costs, because it would force Italian banks to tighten their belts, and because it would force coddled Italian industrial companies to actually face the market (of all shocking things).
The most absurd aspect in all this is that those whose interests would be best served by foreign involvement in the Italian banking market are the small investors and bank customers who have provided the support to change Banca Antonveneta's Board, and imperil the ABN Amro bid. I cannot help but pity those who applaud the cheap nationalism and provincialism of Mr. Fiorani (the BPL Chairman) who said at the Antonveneta AGM that "we have to stop the Dutch," and (at the recent BPL meeting) that "to the supposed opening of the European market we respond with the force of localism and territorial pride," because it is not Italy "that is entering Europe, but in this case it is Europe that is forcing its way to us."

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