Bank of Italy seeks cross-holding reform

Business Materials 22 October 2007 02:36 (UTC +04:00)

The Bank of Italy has proposed governance guidelines that could prove to be a further important step in unwinding the tight-knit system of power-sharing and cross-ownership that has been at the heart of corporate Italy since the 1940s.

The regulator said over the weekend that Italian banks which had recently moved to dual-board structures of governance - comprising a supervisory board and a management board - should take measures to keep their distance from companies in which they have significant shareholdings.

The proposals could have a profound effect on Mediobanca, Italy's most powerful investment bank which for decades has orchestrated power-sharing among the country's corporate elite and itself had large shareholdings in a number of companies.

Mediobanca has switched to a dual-board system and still has large shareholdings in a few companies, most notably Generali, Italy's largest insurer. Gabriele Galateri, Mediobanca's previous chairman, is still the deputy chairman of Generali and there has been a great deal of discussion recently in Italy about replacing him with Cesare Geronzi, Mediobanca's new and controversial chairman of its supervisory board.

The proposals by the Bank of Italy, on which banks can comment until the end of November, would stop Mr Geronzi - who is being investigated in multiple criminal proceedings stemming from decades at the top of Italian finance - from being Generali's deputy chairman.

The Bank of Italy's move comes after recent activity in the same area from the country's antitrust regulator.

The regulator allowed UniCredit's acquisition of rival bank Capitalia but only on condition that UniCredit sell its 3.8 per cent stake in Generali.

Meanwhile, the regulator also ordered board members who had a role in Generali or Mediobanca not to take part in voting on investment banking or insurance matters.

The Bank of Italy proposals show a desire to ensure that the operational independence of the managers of Italian banks from the influence of their largest shareholders.

Mario Draghi, governor of the Bank, is also concerned about potential conflicts of interest.

Dual systems of governance have been a popular way of spurring recent bank mergers in Italy, in part because they defer questions on cuts by preserving director jobs. ( FT )