January 20, 2015 / 4:01 PM / 5 years ago

Italy's Renzi presents landmark banking reform

ROME (Reuters) - Italian Prime Minister Matteo Renzi’s government on Tuesday defied widespread political opposition by drafting an emergency decree to change shareholder voting rules at the country’s popolari or cooperative lenders.

Italy's Prime Minister Matteo Renzi addresses the European Parliament during a debate on the Italian presidency of the EU for the last six months, in Strasbourg January 13, 2015. REUTERS/Vincent Kessler

The decree aims to consolidate the banking sector and will overhaul a system that currently gives all shareholders in the banks one vote regardless of the size of their stake.

Outlining the measure after a Cabinet meeting, Renzi said it would affect the 10 largest popolari lenders, which have assets above 8 billion euros ($9.24 billion), obliging them to become joint stock companies within 18 months.

“This is about making sure Italian banks are in a position to deal with the challenges they face in Europe and the world,” he told reporters.

Shares in cooperative banks, including Banca Popolare dell’Emila Romagna (EMII.MI), Banco Popolare BAPO.MI, UBI (UBI.MI) and Popolare Milano PMII.MI soared this week after reports circulated at the weekend that the government planned to take steps aimed at a long-awaited consolidation of the sector.

Renzi said he knew the “historic” decree would be “contested and controversial” but said it would help change a system that currently produces “too many bankers and not enough credit”.

The reform, which also contains a provision to make it easier for bank customers to transfer current accounts without paying heavy fees, boosts Renzi’s reformist credentials. He has met widespread criticism for failing to produce deep changes needed to revive Italy’s struggling economy and his approval ratings have fallen sharply in recent months.

But previous governments have already tried to shake up the cooperative banking sector and the reform still faces possible obstacles from politicians and local interests which will have 18 months to try to halt the measures.

By seeking to abolish the one-vote-per-investor rule that is peculiar to the popolari — mid-sized and small banks with strong political ties — Renzi is taking on a vast web of vested interests.

The move appears particularly risky at a time when he is seeking to muster cross-party support for the election of the new president of the republic.

Renato Brunetta, an ally of centre-right leader Silvio Berlusconi questioned the logic of the measure, saying: “The popolari are the only ones that during the crisis increased lending to households and businesses.”

The anti-establishment Five Star Movement accused Renzi of “preparing a blitz in favor of his banker friends at the expense of small and medium companies.”

Analysts said the planned reform would turn all popolari banks into possible takeover targets.

Some said the changes could also help one of the popolari raise capital on the market to rescue troubled Monte dei Paschi di Siena (BMPS.MI) or Carige (CRGI.MI), the two Italian lenders that failed a Europe-wide health check of banks last year.

The voting rules of Italy’s cooperative lenders have long been seen as an obstacle to mergers and to attracting new investors. The Bank of Italy has repeatedly recommended turning the popolari into joint-stock companies.

Additional reporting by Massimiliano Di Giorgio, Gavin Jones, Steve Scherer, writing by Gavin Jones and Silvia Aloisi; Editing by Ruth Pitchford and David Evans

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