Imagining an Italy where Mediobanca isn't omnipotent

Global Finance, Jul 1997 by Augelli, Catia, Oddone, Francesco

FAILED DEALS AND STRANGE DOINGS AT THE BANK REFLECT CHANGES AFOOT.

For the past half century corporate finance in Italy has been synonymous with two names: Mediobanca, the powerful Milan house that long had a monopoly on investment banking in the country, and Enrico Cuccia, Mediobanca's brilliant chief, who rebuilt Italy's major companies after World War II and wove the interests of northern Italy's great industrial families into a mutually supportive oligarchy known as the sa/otto buono, "the elite salon." The family names are wellknown ones: Agnelli, Orlando, Pirelli, Ferruzzi, Ligresti, Pesenti, and, among later additions, de Benedetti and Marzotto.

That postwar order is now coming undone. To qualify for European monetary union, Italy must switch to a more open and competitive financial system and make its modem but underused stock and corporate bond markets better allocators of capital-a financial system, in short, more like those in other countries. The oligarchic style of cutting behind-the-scenes deals, controlling companies through patti di sindacato, or syndication pacts, and helping each other through financial catastrophes produced stability in the war's aftermath. But it inhibited development of the kind of market finance and widespread public ownership that Italy needs to marshal domestic savings more effectively, privatize its banking system, and introduce private pension funds.

Successive governments have made some progress over the past five years. The latest government, headed by Prime Minister Romano Prodi, brings together three of the strongest advocates of financial change-Prodi himself, who used to run the state's industrial holding company IRI; former central banker Carlo Ciampi, who headed a coalition government in 1993-1994 and who is now superminister of the economy; and Mario Draghi, top manager of Italy's treasury. Together they appear intent on clipping Mediobanca's wings in order to stimulate competition. Says Antonello Di Mascio, an analyst at Nusa SIM, a Rome brokerage firm: "Only if Mediobanca understands the changes and adapts to them can it preserve some of its clout."

The government is not out to destroy Mediobanca; as the largest concentration of financial talent in the country, it is too valuable. "We do not consider Mediobanca the Devil," says Lanfranco Turci, one of the majority's top economic experts in Italy's parliament. "The problem is to make it possible for other merchant banks to operate."

Mediobanca's troubles, however, are due to more than just a contest of wills with the government. That became especially evident in May, when two of Mediobanca's biggest deals failed. In one case, Banca Commerciale Italiana, which is controlled by Mediobanca, tried to merge with Cariplo, Italy's largest savings bank, but lost to Banco Ambroveneto, a smaller bank outside Mediobanca's orbit.

The other deal that unraveled was an attempt to merge a batch of companies into the Marzotto textile empire. Pietro Marzotto, a Mediobanca board member (and member of the salotto buono), suddenly refused-an unprecedented act. One of Cuccia's young stars, Maurizio Romiti, then left the bank to manage the orphan companies until a new deal can be cooked up. In the same month Maurizio's father, Cesare Romiti, a Cuccia ally (and once considered his possible successor) who runs Fiat for the Agnelli family, was convicted of illicit political funding, a verdict that may be overturned on appeal.

Events turned more bizarre in June. Mediobanca-which has always been highly secretive; no one at the bank ever gives press interviews-suddenly held a press conference at the 16th century palazzo that houses the bank's headquarters behind La Scala opera house. The point of the meeting was to demonstrate that Mediobanca is adapting to change and becoming more international: It was chosen to manage the Italian tranche in Austria's upcoming privatization of its state holding company OIAG.

Three weeks later Gerardo Braggiotti, who is touted as another likely Cuccia successor and who probably was the brains behind the press conference, reportedly threatened to quit the bank in an apparent conflict with the more conservative Vincenzo Maranghi, who is Mediobanca's chief executive. Rumors were that Braggiotti might join the French-AngloAmerican financial house Lazard, a close Mediobanca ally. "There are many negative symptoms at Mediobanca," notes a Marzotto executive. "Failed deals and strangely resigning managers are definitely something new behind those walls."

After hurried consultations with board members, Cuccia brought Braggiotti back two days later and gave him more authority over strategy. But more such clashes are likely-whether they erupt in public or not-for they are symptomatic of how Mediobanca's old practices aren't working any longer. Cuccia, though reportedly as sharp as ever, is nearly 90; he holds the post of honorary chairman. And just as Italy's financial landscape is shifting, no clear succession is in place at the bank-a ripe environment for power struggles.