Thursday, 22 August 2013

Italian corporate system upended by financial crisis

Financial Times finds web of Italian big business unravelling

21 August, 20:00
(ANSA) - London, August 21 - The closely knit world of Italian big business has begun to unravel after decades of cronyism and capitalism, with change driven more by a lack of money than any kind of crackdown or cleanup operation, according to the Financial Times newspaper.

In an article published Wednesday, the London-based daily tracked a series of major corporate shake-ups that have begun to transform the way major businesses have operated in Italy since as far back as World War Two.

"This is not about making the world a better place, it is because the money is finished. Things are changing and in typical Italian style, it is brutal. There is blood everywhere," the Financial Times said, quoting what it termed one of Italy's most senior bankers.

As evidence, it pointed to pressure from investors forcing insurer Generali to unwind cross-shareholdings with Mediobanca that involved everything from newspapers and television to insurance, banking, telecommunications, airports, construction, and hotels.

Such major companies have been tightly linked, the article states, through a system of connections known as "salotto buono", which translates as "the fine drawing room" and has become a symbol of a kind of old-boys' club manner of doing business.

But the economic crisis that devastated much of Europe in 2011 and brought Italy to the brink of bankruptcy marked the beginning of the end of the club.

The system of cross-holdings helped to spread financial woes very quickly from one stricken business to another, explained the Financial Times.

As a result of the financial crisis, four of Italy's largest corporations - Mediobanca, Generali, UniCredit and Intesa Sanpaolo - have sustained losses on billions of euros of interconnected holdings, putting the jobs of company executives at risk, the newspaper reports.

"This is the very end of 'I appoint you because you are my friends and you buy my shares because I voted you on the board'," Davide Serra, chief executive of hedge fund Algebris, told the newspaper. "This shareholder pact mentality has been like a cancer that went from politics to business to bureaucracy to justice.

Business is reacting first because it had no choice".

Some fear that seriously instability will result from the crumbling of the salotto buono style because the Italian government has no viable economic or long-term productivity strategy as a replacement.

In a significant sign of the crumbling of the old system, tax police arrested Salvatore Ligresti, 81, patriarch of one of Italy’s best-connected dynasties last month along with two of his children and several former executives of the Italian insurer Fondiaria-Sai.

The arrests came as part of a probe into false accounting and market manipulation.

No one has been charged but Ligresti is under house arrest and several other suspects are being held.

The very fact that such high-profile figures could be arrested has sent shockwaves through corporate Italy's elite, the Financial Times notes.