Out with the new and in with the old in Rome

Italy’s corporate and financial establishment gathers in Rome Thursday to pay tribute to the country’s central bank governor and hear his annual state of the nation address.

No doubt Mario Draghi will be feeling pretty good. After all, he can point to the fact that since he took up residence at the Bank of Italy, the once impregnable fortresses of the country’s banking fiefdoms have been breached no fewer than four times in the past 12 months alone.

Italy is also home to two of Europe’s largest banking groups – Intesa Sanpaolo and the recently proclaimed and even larger combination of Capitalia and UniCredit.

As usual, the assembled grandees will be unstinting in their praise for the governor’s achievements – as they were every year during the lengthy reign of his controversial predecessor Antonio Fazio. Of course, Mr Fazio’s is no longer a name many of the audience care to drop given his retirement in disgrace after trying to trip up Spanish and Dutch attempts to set foot in Italy.

Indeed, the applause for Mr Draghi is likely to be all the warmer for the striking contrast between his record and that of his predecessor. Might this be because the former Goldman Sachs International banker has thrown open Italy’s borders to the big boys of international banking who have made no secret of their desire for a share of Italy’s rich retail banking pickings?

To some extent, yes – if the way BNP Paribas snapped up Banca Nazionale del Lavoro is anything to go by. But if anything the traditional Italian system has been reinforced. And nobody should think that the recent combination of Capitalia and UniCredit is a triumph of consolidation.

For along with the earlier Intesa-Sanpaolo mega merger, the deal looks more like a victory for those who have never disguised their determination to wrap the sector in the Italian flag and avoid exposing it to the full force of a free functioning market.

After all, Capitalia, whose fortunes were transformed over the past five years by a management team led by chief executive Matteo Arpe, should have been a perfect advertisement for market efficiency. Mr Arpe frequently made clear that Capitalia should buy or be bought as consolidation in Europe gathered momentum.

And with the bank’s controversial and protectionist veteran chairman Cesare Geronzi seemingly on the wane, it appeared a deal to maximise value for shareholders was on the cards. Yet in 12 weeks, Capitalia has seen its pretensions as an acquirer dissipate and its potential in an auction removed. For Mr Geronzi fought back by working the system as only he knows how.

Indeed, when UniCredit made its final move, Capitalia’s management was cut out from all negotiations. These were instead conducted by Mr Geronzi.

Capitalia investors owe a debt of gratitude to Mr Arpe, not least because he fought off an attempt to oust him in February that seriously risked undermining the bank’s share price. This would have certainly short-changed them even more in what became the inevitable deal with UniCredit.

It is thus somewhat ironic that Mr Arpe is resigning from the bank he helped rescue on the very day Mr Draghi receives his acclamation for another job well done. The leading cheerleader will no doubt be UniCredit’s new deputy chairman and head of its executive committee: Cesare Geronzi.

Generation clash at Eon

Eon’s new strategy presentation Thursday could well turn into a clash between the old paternalistic Germany and the new corporate culture of shareholder value.

The country’s largest energy group is one of its most successful companies. But low debt levels are bringing it to the attention of hedge funds and longer-term investors who want money returned to them.

The problem is it must please conflicting audiences. Public opinion would hardly like to see shareholders receiving piles of money from high energy prices. The traditional elements on Eon’s supervisory board would also rather see money spent on acquisitions.

But Eon should resist these calls. It has failed twice in expensive takeover attempts. Its investment programme is aggressive.

Its debt – only 20 per cent of the value of its assets – could be increased by €20bn to €25bn, which could push up its share price.

Shareholders keen for a share buy-back or special dividend might have an ally in the new chief financial officer, Marcus Schenck. He was a former high-ranking Goldman Sachs banker and is representative of a whole swathe of young German managers trying to push a new Germany forward.

But the question is how far will he be allowed to go. One warning sign is the ousting of Harry Roels at rival RWE by traditionalists in the utility’s supervisory board. An intriguing prospect for another large acquisition for Eon could be France’s Suez if its deal with Gaz de France fails. But Eon will find that if Endesa was difficult politically, Suez could be in an altogether different league.

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