Italian banks. Double assault

Twin challenges to Italy to open its banking industry

ANTONIO FAZIO faces a double challenge to his iron grip on Italy's banking system. The governor of the Bank of Italy has long shielded his country's banks from foreign predators. Now Spain's Banco Bilbao Vizcaya Argentaria (BBVA) is considering a bid for Banca Nazionale del Lavoro (BNL), Italy's sixth-biggest bank by assets, while the Netherlands' ABN Amro is mulling a takeover of Banca Antoniana Popolare Veneta, known as Antonveneta, the ninth-biggest. Last week both foreign suitors told the governor of their intentions, as Italian law requires. One week after this, the banks can make formal bids. Mr Fazio then has 60 days to block them.

As long-standing shareholders in their targets, BBVA and ABN Amro are well aware of Mr Fazio's opposition to foreign control of Italian banks. The Spanish bank already owns 14.7% of BNL; the Dutch bank has 12.7% of Antonveneta.

But Mr Fazio is now under pressure, from both the European Commission and domestic opponents. In the past few years, foreign banks with an interest in Italy have turned to Brussels for help. A few weeks ago, Charlie McCreevy, the European internal-market commissioner, wrote to Mr Fazio asking him to explain his policy. Mr McCreevy found the reply unconvincing.

Mr Fazio's domestic critics - such as Confindustria, the employers' federation, and the banks themselves - want the banks to become more competitive. Bank bosses say privately they may have to take foreign partners. Mr Fazio's interference has left Italy's banking market one of Europe's most fragmented. In his 12 years as head of the central bank he has not only thwarted foreigners' designs on Italian banks, but also blocked domestic mergers when he thought they would make a bank too powerful. In 1999 he defused a planned “big bang” involving four leading banks: SanPaolo IMI wanted to join forces with Banca di Roma (now Capitalia), and UniCredito was keen to merge with Comit.

Politicians, however, support Mr Fazio's protection of domestic banks. Silvio Berlusconi, the prime minister, worries about the “colonisation” of Italian banking. Yet they are not wholly happy with Mr Fazio. They recently discussed shifting supervision to the antitrust authorities and limiting the governor's tenure, which is for life (though they did neither.)

A domestic white knight could help Mr Fazio avoid open conflict with Mr McCreevy. Hence his encouragement for the interest of Banca Popolare di Lodi (BPL), the country's tenth-largest bank, in Antonveneta. In the past few months Gianpiero Fiorani, boss of BPL and a close confidant of Mr Fazio, has more than doubled his stake in Antonveneta to 5% and rallied some allies. BPL is a dab hand at domestic takeovers, having bought or formed alliances with 22 small banks since 1996.

Mr Fazio is also doing nothing to discourage an unorthodox pact of Italian shareholders from challenging the grouping led by BBVA. The Spanish bank heads an alliance that includes Generali, a big insurer, and holds 28% of BNL. Francesco Caltagirone, a property developer, and four other industrialists now control almost one-quarter.

Despite Mr Fazio, some investment-bank analysts think that the foreigners might get their way. Alessandro Roccati, of Fox-Pitt, Kelton, an investment bank, gives BBVA a “moderately high” probability of success. The Spanish bank plans to make its offer in shares, and has room to increase its bid should a rival emerge. Davide Serra, of Morgan Stanley, is also positive about the foreign banks' chances. Consumers would welcome the arrival of the Dutch and the Spanish. Prices for retail-banking services are 20-30% higher in Italy than in the Netherlands or Spain. BBVA and ABN Amro would add value and reduce prices in mortgage lending, credit cards and lending to small business, says Mr Serra.

Whatever the outcome, the foreigners' interest will step up pressure on Italian banks to accelerate domestic consolidation. Maybe Mr Fazio is having some regrets over his resistance to the big bang six years ago. If it had happened, his home market would be better prepared for attacks from abroad.

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