Where is Mediobanca going under its new chairman and will it manage to stay independent? David Lane reports from Rome.Milanese finance experienced a minor revolution earlier this year when UBS Warburg issued a research report on that secretive institution Mediobanca – Italy’s leading investment bank. Traded on Milan’s stock market for almost 50 years, Mediobanca’s shares had never before appeared suitable for coverage by major securities houses.
Covering the shares of a company where Machiavellian manoeuvring counted, rather than the market, seemed a barren pursuit. After all, Mediobanca was the nexus where everyone that mattered in Italian finance and industry did deals behind the scenes and where long-time boss, Enrico Cuccia, who died three years ago aged 90, pulled the strings. So what is happening at Mediobanca?
UBS Warburg’s report coincided with a shake-up at Mediobanca. Resignations came, in April, from Vincenzo Maranghi – Mr Cuccia’s protégé and long-serving managing director, who had upset Mediobanca’s large shareholders – and Francesco Cingano, the elderly chairman who was a close friend of Mr Cuccia. Their departure broke the links to Mr Cuccia.
The new chairman is Gabriele Galateri, who headed IFI/IFIL, the investment companies controlled by the Agnelli family, with success. He is flanked by two general managers, Alberto Nagel and Renato Pagliaro, who are both respected in Milanese financial circles. They represent stability in an upheaval that ends several years of disagreement and controversy, and months of uncertainty about Mediobanca’s management structure.
Share price
On its sum-of-the-parts approach, UBS Warburg put a target price of E8.9 ($10.3) on Mediobanca’s shares when they were trading at E7.4. It took account of all assets and not just Mediobanca’s equity portfolio, as the market had previously done. Within a month the share price had closed half of that gap.
UBS Warburg points to two risk factors in its valuation, however. One surrounds corporate governance and management independence. Given the past record, it is no surprise that these are worries. Mediobanca’s biggest shareholders are UniCredito Italiano (UCI) with 10.4% and Capitalia (formerly Banco di Roma) with 8.6%, and they have representatives on the investment bank’s executive committee. Mediobanca’s full board also has a representative of insurer Ras. All three have their own investment banks and so conflict of interest (on the part of Capitalia and UCI mainly) is an issue.
Ensuring Mediobanca’s independence will weigh on Mr Galateri, whom everyone describes as a nice person. Some wonder if he will have the steel to confront bloody-minded, self-seeking shareholders and deal with political pressure.
And political pressure seems likely in the case of Generali, the second risk factor that UBS Warburg pinpoints. Italy’s biggest insurer, Generali is the most appetising part of Mediobanca’s portfolio and, with a 13.6% stake, the bank is its biggest shareholder. It is an attractive target: the reason why a group of French investors recently tried to gain control of Mediobanca.
However, Generali is also in the sights of Mediolanum, the financial services group of which Italy’s prime minister, Silvio Berlusconi, is the biggest shareholder, together with partner, Ennio Doris, who sits on Mediobanca’s board. Mediolanum has lost its shine and some analysts say that its business model, which is fine for bull markets, no longer works. A marriage between Generali and Mediolanum would suit Messrs Berlusconi and Doris nicely.
Conflict of interest
Capitalia and UCI could resolve the conflict of interest by merging and then vesting UniCredit Banca Mobiliare and MedioCredito Centrale (MCC) in Mediobanca – a notion that is keeping parts of the Milan rumour mill turning. Creating a large investment bank would be collateral to a marriage between the two big commercial banks. Some are speculating about how Mediobanca – essentially an Italian affair – will tackle the question of foreign operations.
Pessimistic observers think that Mediobanca will not survive independently but such dismal thoughts have been disabused in the past. And Mr Galateri’s task is easier than the one he faced at troubled car-maker Fiat. Mediobanca is, after all, Italy’s leading domestic investment bank and is comfortably profitable.
Moreover, proof of its qualities is clear in the top jobs that former Mediobanca people occupy with competitors: Roberto Notarbartolo at Rasfin, Matteo Arpe at MCC and Gerardo Braggiotti at Lazard, to name just three.