Intesa's ouster shows influence of old guard in Italy's banking

Reuters

By Silvia Aloisi and Lisa Jucca

MILAN, Oct 1 (Reuters) - Enrico Cucchiani's ousting fromItaly's biggest retail bank underscores the power of the oldguard in the financial system that critics say holds the economyback.

Cucchiani, 63, was forced out less than two years into thejob as Intesa Sanpaolo chief executive after clashing withGiovanni Bazoli, an octogenarian banker who is the mighty headof the bank's supervisory board.

Cucchiani had also lost the support of the Italian bankingfoundations that hold around 25 percent of Intesa's capital. Hisdeparture highlights the enduring influence of thesenot-for-profit entities that were set up in the 1990s when thesector was privatised.

The foundations, which have close ties with localadministrations, are core shareholders in some of Italy'sbiggest lenders, including Intesa's rival UniCredit.

Critics say the foundations promote a system of localcontrol and political patronage that interferes with the waybanks are run, is not market friendly and hurts the economywhich is suffering from the longest recession since the SecondWorld War.

"The foundations are seeking to reassert their control overIntesa and that is worrying," said Bernardo Bortolotti,associate professor of economics at the university of Turin.

"It shows the huge fragility of Italian banks, which have avery weak governance because of the weight of the foundationsand that is a real burden on the industry."

"There were also management issues behind this showdown, andit would be simplistic to dismiss them. But the rear guard ofItalian politics, banking and capitalism is fighting to thebitter end, even if the system is falling to pieces."

Insiders say there were several reasons for the boardroombattle: Cucchiani's solitary management style, his failure tobuild his own team at the bank, his attempts to bring in newinvestors and his opposition to stretching Intesa's finances tobail out struggling domestic companies.

But whatever the motive for Cucchiani's exit, analysts andinvestors say it leaves Intesa - which earns 80 percent of itsrevenues in Italy and holds 100 billion euros ($135 billion) indomestic government bonds - weakened at a time of politicalinstability and economic malaise.

"It's a bit disappointing to see him going. He was quitegood in terms of talking to the market, being more open andshaking up the bank and being more proactive. It's a bit of abackward step," said a UK-based investor who recently soldshares in Intesa Sanpaolo because of worries about the Italianeconomy.

In a brief statement on Monday, Intesa said Cucchiani, whowas ousted in unanimous votes by the bank's two boards, had leftthe bank to allow it to reach its full potential. Bazoli,Cucchiani and the foundations have all declined to commentpublicly on the reasons for his departure.

UNDER THREAT

The foundations say they are stable shareholders that havehelped Italian lenders weather the financial crisis better thantheir rivals in southern Europe.

In good times, the foundations have used dividends from thebanks to fund social and cultural projects. But sinking bankingprofits have left the foundations' coffers dry at a time whenregulators are telling banks to boost their capital strength.

Europe-wide stress tests next year could force Italian banksto raise more capital, undermining their ability to act ascorporate power brokers and potentially diluting thefoundations' stakes.

Presenting Intesa's half-year results in August, hit bysoaring provisions for bad loans, Cucchiani surprised many bymaking a pitch to potential new shareholders, calling the bank"an attractive entry point for international investors."

"The foundations clearly did not like that. They want tomaintain the status quo but they don't have the money to injectnew capital, so they fear losing their power," said CarloMilani, an economist at think tank Centro Europa Ricerche.

Cucchiani's ousting follows a string of forced departures ofbank managers who clashed with Italian foundations.

In 2010, internationally respected banker Alessandro Profumowas sacked as UniCredit CEO after a row with that bank'sfoundations over the need to reach out to foreign investors.

Now he is chairman of Banca Monte dei Paschi di Siena, the scandal-hit Tuscan lender, whose top investor isalso a banking foundation and which is seeking to avertnationalisation with a 2.5 billion euro capital increase.

Matteo Arpe, a former CEO of Capitalia, was also shown thedoor in 2007 after resisting a forced merger with UniCreditmeant to shield the Rome-based bank from foreign predators.

Cucchiani's exit came just after a deal last week toincrease the grip of Spain's Telefonica over telecomsgroup Telecom Italia's, in which Intesa has a stake.

Loss-making flagship carrier Alitalia - which Cucchiani'spredecessor Corrado Passera helped rescue in 2008 - is also atrisk of falling into foreign hands for lack of cash.

Both developments are a sign of the times. The protractedrecession is forcing Italian banks to cut some of their tieswith pressured domestic companies.

Even investment bank Mediobanca, long the kingpinof Italy's corporate world through a web of cross-shareholdings,has announced it will sell some stakes.

Critics of Cucchiani inside the bank say the manager, whocame from the insurance sector, did not gel with front-linemanagers, lacked retail banking experience and failed to come upwith an effective strategy to weather Italy's recession.

Despite professing a pro-market creed, Cucchiani did backsome old-style Italian transactions, like the buyout of Camfin, the holding controlling tyre-maker Pirelli,the price of which was criticised by market regulator Consob.

But his successor - insider Carlo Messina - may find itharder to keep Intesa out of deals where politics and personalrelationships can count more than business.

Analysts at Mediobanca Securities said Cucchiani's departureleaves Intesa exposed to pressures to use its large balancesheet for "unwelcome" domestic rescues.

Intesa last week denied market talk that it might step in tosave Monte dei Paschi. Cucchiani had said in September he didnot want to invest in Italian banks.

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