Italys financial world has been tossed into a frenzy* by recent bids from outsiders to take over two domestic banks, Banca Nazionale del Lavoro (BNL) and Antonveneta. The bids from Spains Banco Bilbao Vizcaya Argentaria (BBVA) and ABN Amro of the Netherlands respectively have triggered a battle that will determine the future of Italian finance.
On one side there is Bank of Italy governor Antonio Fazio, who is fighting to keep the sector as an all-Italian closed shop. On the other there are the foreign institutions, which argue that banking should be open to cross-border mergers and acquisitions, just like other parts of the single European market.
The story so far
Before the two separate bids were announced, the central bank in Rome made little secret of its policy of limiting foreign holdings in Italian institutions to around 15 per cent. Although this conflicted with European Union (EU) competition rules, many Italian politicians, including prime minister Silvio Berlusconi, seemed happy with it.
BBVA and ABN Amro were not. BBVA held and still holds a 14.75 per cent stake in BNL and ABN Amro had 12.7 per cent of Antonveneta, making them the leading shareholder in both cases. However, their inability to increase their respective stakes left them exposed, because Italian banks could buy stock and seize control of BNL or Antonveneta at any time. This would have left the outsiders with large, yet nonetheless minority, stakes in banks they did not control.
So, rumour has it, BBVA and ABN Amro went and had a grumble to European internal market commissioner Charlie McCreevy from Ireland. As a result, McCreevy wrote a curt letter to Fazio in February asking for clarification and warning that the commission would take action if EU rules were not being respected.
The EU stance gave BBVA and ABN Amro the courage they needed to take a pop at their takeover targets. The Spanish bank made an all-stock offer for BNL at the start of April, offering stock-holders one of its shares for five of BNLs. Shortly after, ABN Amro announced a cash bid for Antonveneta. Both bids are worth over 6 billion and the offers will only be valid if 50 per cent of the target banks stock is mopped up by foreign banks.
Why the invasion?
The BBVA and ABN Amro bids are part of a global trend for consolidation in the banking sector. Institutions are increasingly looking for mergers so that they are strong enough to fend off hostile bids from bigger fish. Banks are also encouraged to grow by the economies of scale that exist in the sector. Banking has become a highly computerised business, so the bigger you are and the more clients you have, the better the returns on your investments in expensive technology.
Foreign banks are particularly interested in breaking into Italy. The market is lucrative because of the high savings quotas and the fact that Italian banks charge some of the highest fees in the world for retail banking services. Whats more, foreign banks tend to be more competitive than their domestic counterparts. So they are confident that, once inside Italy, they could munch up a big slice of the action. Europes top banks, for example, on average generate profits of over a fifth (22.4 per cent) of turnover. According to a study by financial research unit R&S Mediobanca, the profit-turnover ratio for Italys top 12 banks is only 14.7 per cent. Furthermore, on average European banks have to write off 6.7 per cent of the money they loan, while Italys top 12 write off 8.5 per cent.
Fazio thinks that Italy should only open up its banking sector if everyone else does. To a certain degree hes right because France and Germany operate closed banking markets too. However, analysts believe that if BBVA or ABN Amro are successful, the French and Germans would have to loosen grips on their domestic set-ups as well. Besides, the rest of Europe is not as nationalistic as that pair. Part of the reason BBVA wanted to expand was in order to keep up with Spanish rival Santander Central Hispano, which recently bought Britains Abbey to become Europes number-four bank. And, in theory, theres nothing stopping Italian institutions preying on foreign banks. In practice though, Fazio knows that no domestic bank is big enough or strong enough to go on forays abroad. There are no Italian banks in Europes top ten, and the nations biggest, Intesa, ranks only 28th. It is followed by Unicredit (32nd) and Sanpaolo (35th).
Perhaps what Fazio is really worried about is that if these deals go through, the floodgates will open, with foreign operators pouring in and clearing up. Indeed, whatever the outcome of the two bids, the takeover attempts have exposed the vulnerability of Italys fragmented system. Experts predict that there will be mergers in the near future between Italian banks that dont want to be swallowed up by outsiders.
Meanwhile, Fazio continues plotting to stop the takeovers and is reportedly working behind the scenes to coordinate all-Italian counter bids for the two banks. There is also the possibility that he will organise a passive resistance strategy, in which Italian BNL and Antonveneta shareholders simply refuse to sell.
Lets hope Fazio fails. A strong economy needs the support of an efficient banking sector, which Italys is unlikely to become without a dose of world-class competition. Efforts to open up and improve the sector, bringing down retail costs, have the support of consumer groups and the business community, especially the powerful industrialists association Confindustria. With the weakest economy in the euro-zone, the nation can no longer afford to have an antiquated banking system.
For students of English.
Below are some idiomatic phrases from the text above to improve your English. Please write (in English or Italian) to firstname.lastname@example.org if you have any comments, suggestions or difficulties.
Tossed into a frenzy Thrown into activity
Triggered a battle Started a dispute
Left them exposed Made them vulnerable
Rumour has it Some people are saying
To take a pop at To attack
Global trend Worldwide pattern
To fend off To resist
Breaking into Entering
Preying on Targeting
Swallowed up Taken over