MILAN, Oct 1 (Reuters) - Enrico Cucchiani’s ousting from Italy’s biggest retail bank underscores the power of the old guard in the financial system that critics say holds the economy back.
Cucchiani, 63, was forced out less than two years into the job as Intesa Sanpaolo chief executive after clashing with Giovanni Bazoli, an octogenarian banker who is the mighty head of the bank’s supervisory board.
Cucchiani had also lost the support of the Italian banking foundations that hold around 25 percent of Intesa’s capital. His departure highlights the enduring influence of these not-for-profit entities that were set up in the 1990s when the sector was privatised.
The foundations, which have close ties with local administrations, are core shareholders in some of Italy’s biggest lenders, including Intesa’s rival UniCredit.
Critics say the foundations promote a system of local control and political patronage that interferes with the way banks are run, is not market friendly and hurts the economy which is suffering from the longest recession since the Second World War.
“The foundations are seeking to reassert their control over Intesa 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 a very weak governance because of the weight of the foundations and that is a real burden on the industry.”
“There were also management issues behind this showdown, and it would be simplistic to dismiss them. But the rear guard of Italian politics, banking and capitalism is fighting to the bitter end, even if the system is falling to pieces.”
Insiders say there were several reasons for the boardroom battle: Cucchiani’s solitary management style, his failure to build his own team at the bank, his attempts to bring in new investors and his opposition to stretching Intesa’s finances to bail out struggling domestic companies.
But whatever the motive for Cucchiani’s exit, analysts and investors say it leaves Intesa - which earns 80 percent of its revenues in Italy and holds 100 billion euros ($135 billion) in domestic government bonds - weakened at a time of political instability and economic malaise.
“It’s a bit disappointing to see him going. He was quite good in terms of talking to the market, being more open and shaking up the bank and being more proactive. It’s a bit of a backward step,” said a UK-based investor who recently sold shares in Intesa Sanpaolo because of worries about the Italian economy.
In a brief statement on Monday, Intesa said Cucchiani, who was ousted in unanimous votes by the bank’s two boards, had left the bank to allow it to reach its full potential. Bazoli, Cucchiani and the foundations have all declined to comment publicly on the reasons for his departure.
The foundations say they are stable shareholders that have helped Italian lenders weather the financial crisis better than their rivals in southern Europe.
In good times, the foundations have used dividends from the banks to fund social and cultural projects. But sinking banking profits have left the foundations’ coffers dry at a time when regulators are telling banks to boost their capital strength.
Europe-wide stress tests next year could force Italian banks to raise more capital, undermining their ability to act as corporate power brokers and potentially diluting the foundations’ stakes.
Presenting Intesa’s half-year results in August, hit by soaring provisions for bad loans, Cucchiani surprised many by making 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 to maintain the status quo but they don’t have the money to inject new capital, so they fear losing their power,” said Carlo Milani, an economist at think tank Centro Europa Ricerche.
Cucchiani’s ousting follows a string of forced departures of bank managers who clashed with Italian foundations.
In 2010, internationally respected banker Alessandro Profumo was sacked as UniCredit CEO after a row with that bank’s foundations 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 is also a banking foundation and which is seeking to avert nationalisation with a 2.5 billion euro capital increase.
Matteo Arpe, a former CEO of Capitalia, was also shown the door in 2007 after resisting a forced merger with UniCredit meant to shield the Rome-based bank from foreign predators.
Cucchiani’s exit came just after a deal last week to increase the grip of Spain’s Telefonica over telecoms group Telecom Italia‘s, in which Intesa has a stake.
Loss-making flagship carrier Alitalia - which Cucchiani’s predecessor Corrado Passera helped rescue in 2008 - is also at risk of falling into foreign hands for lack of cash.
Both developments are a sign of the times. The protracted recession is forcing Italian banks to cut some of their ties with pressured domestic companies.
Even investment bank Mediobanca, long the kingpin of 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, who came from the insurance sector, did not gel with front-line managers, lacked retail banking experience and failed to come up with an effective strategy to weather Italy’s recession.
Despite professing a pro-market creed, Cucchiani did back some 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 it harder to keep Intesa out of deals where politics and personal relationships can count more than business.
Analysts at Mediobanca Securities said Cucchiani’s departure leaves Intesa exposed to pressures to use its large balance sheet for “unwelcome” domestic rescues.
Intesa last week denied market talk that it might step in to save Monte dei Paschi. Cucchiani had said in September he did not want to invest in Italian banks.