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Salotto finalmente aperto

21 June 2013 By Rob Cox

There are many reasons to worry about Italy’s prospects, but Mediobanca is no longer one. After nearly seven decades of playing the puppet master of Italian capitalism, the merchant bank that Enrico Cuccia built has announced an official retreat. It is the end of an era. Though Mediobanca’s power was already much diminished since Cuccia’s death in 2000, the new three-year business plan, unveiled on Friday in Milan, is a clear sign that corporate Italy, if not the state, is reforming.

Mediobanca will divest its holdings in other companies and focus only on retail and investment banking. That means the sale of part of its 13 percent stake of Generali, the insurer; 14 percent of media group RCS; 12 percent of a consortium that controls Telecom Italia; and a 5 percent chunk of Pirelli.

Cuccia founded the bank in 1946 as a bulwark for industrialists against the rising tide of post-war communism in Italy. The time was right for a Mediobanca. Domestic capital was scarce, politicians were sceptical of large private companies and national borders were closed to the free movement of capital.

It worked out well for Mediobanca, largely thanks to Cuccia’s ability to weave a tight net of finance and influence. The bank long stood at the centre of Italy SpA. It could engineer mergers and takeovers, often without much concern for minority shareholders. It appointed and fired managers and generally meddled in all manner of financial affairs.

It also worked out well for Italy – for a while. Mediobanca helped nurture and fund a reasonably strong industrial economy in a country which had never had large, strong privately owned companies.

However, techniques which were clever and helpful in the 1950s and 1960s gradually became destructive and corrupt. Mediobanca became a byword for deals and shareholder pacts which unfairly favoured insiders. It constructed cascades of holding companies, which allowed it to exert control more than the economic interests it held could justify. By the time Cuccia died, such tactics had helped make Italy a pariah for global investors.

An official acknowledgement that Mediobanca will, to paraphrase Cuccia, count rather than weigh shares, is welcome. If the words are followed by action, Mediobanca will unlock 2 billion euros of capital (after some hefty writedowns, naturally) which it can invest in its own business. It could return to its merchant banking origins, providing funds and expertise to the next generation of Italian entrepreneurs.

Mediobanca’s simplification goes along with a similar back-to-basics at its most important holding, Generali. Mario Greco, the chief executive, is selling some 4 billion euros of assets. He will use the cash to support the insurer’s capital base and international expansion plans. That, combined with Mediobanca’s planned reduction of its stake in the group, should make for a more robust Generali.

The dismantling will create more market discipline. RCS, publisher of the influential Corriere della Sera newspaper, for instance, must convince shareholders considering subscribing to its 421 million euro rights issue that it will make a financial return, not confer them editorial favours. That is a major change.

The old guard assembled around the Mediobanca corporate galaxy was known as the salotto buono, the fine drawing room. The salotto will now be shuttered. That leaves many companies unprotected from a takeover, even – gasp – by foreigners. But the discipline of a more open market will help companies compete better against European and global peers. And at a time when international investment in the country has virtually dried up, a foreign economic invasion is the least of Italy’s worries.

The willingness to abandon practices which had long outlived their usefulness should set an example for Italy’s politicians. In the drawing rooms of Rome, there is much talk about the need for reform. There has been some action, but not nearly enough. The political establishment is still prey to the forces of inertia – those rules, regulations and institutions that hold the country back.

It is time to rediscover the capitalistic and innovative forces which united Italy in the 1860s and which gradually turned a poor agricultural and semi-feudal economy into an industrial miracle. In that context, the salotto buono’s dissolution is, indeed, molto buono.


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