MILAN Mediobanca (MDBI.MI), under pressure to improve returns for shareholders, plans to sell almost all of its large stakes in major companies, ending half a century of playing kingmaker to Italy's corporate world to focus on banking.
The bank's Chief Executive Alberto Nagel said on Friday Mediobanca aimed to cut 2 billion euros of equity holdings through sales and writedowns to concentrate on its core banking operations, a move that will push the bank in the red this year.
Italy's economic crisis and the introduction of new bank capital rules that make it costly to hold unprofitable investments have forced Mediobanca to relinquish control.
"It's a natural evolution pushed by new banking rules and also by the euro crisis," Nagel said. "Having a large exposure to equities in southern Europe means today denting profitability and exposing (the bank) to high volatility," the CEO said as he unveiled the firm's 2014-2016 business plan.
"Had we had a portfolio of high-performing U.S. investments, the pressure would have been minimal."
Mediobanca, founded in post-war Italy by legendary banker Enrico Cuccia, sits at the center of a web of corporate holdings, the product of a strategy focused on influence over Italy's corporate landscape rather than profit.
Nagel said Mediobanca, which owns 13.2 percent of Generali (GASI.MI), wanted to sell 3 percent of Italy's largest insurer once Generali's reorganization was at a more advanced stage. But the bank is ready to sell all other strategic holdings.
The Milan-based group plans immediately to book writedowns of 400 million euros to reflect the market value of major holdings and pave the way for their sale. This will result in a loss of about 200 million euros for the financial year ending June 30.
Besides its core investment banking business, Mediobanca wants to increase the weight of its retail bank, a source of much-needed liquidity, and its lucrative corporate finance arm.
It also launched a new alternative asset management platform on Friday and said it would increase its foreign presence.
The bank will aim for a return on equity of 10-11 percent by 2016, a core Tier 1 ratio, a measure of financial strength, of 11-12 percent and a dividend payout at 40 percent of earnings.
Mediobanca shares, however, took a beating, falling as much as 6.5 percent. Analysts said the market reaction showed some concerns that the plan was too ambitious.
Nagel said: "Our shares have overperformed ahead of the plan. We must give brokers the time to assess it. This will take 1-2 weeks. Today it's a case of buy on rumors, sell on news."
VALUE OVER INFLUENCE
Mediobanca played an important role in helping Italy to develop an independent corporate sector after World War II.
But over time, the bank's name became linked with Italy's boardroom elites and opaque dealmaking carried out in its 'salotto buono', a closed boardroom circle which local businessmen strived to be part of. The 'weight', or influence, of an investment rather than its financial value was the guiding star of Cuccia and his immediate successors.
Nagel said that world was long gone and the bank did not want to prolong a business model based on minority stakes.
"The existence of the 'salotto buono' has generated a control structure that has not helped the development of these companies," said Roberto Lottici, fund manager at Ifigest.
"In principle, Mediobanca's change of strategy is to be welcomed even if, at this point in time, it may render some of these companies vulnerable."
Besides Generali, Mediobanca's biggest holdings include leading domestic publisher RCS Mediagroup, owner of influential newspaper Corriere della Sera, and corporate holding Telco, the top investor in domestic phone giant Telecom Italia (TLIT.MI).
Mediobanca has never recouped its initial investment in Telco, currently trading near historic lows, while debt-laden RCS is in the middle of a rights issue.
The bank plans to exit shareholders' pacts at Telco and RCS as the earliest opportunity, possibly already in September.
(Editing by Jane Merriman)