For half a century Mediobanca has been a nexus of Italian industry. Founded in 1946 by Enrico Cuccia, one of the legendary names of Italian banking, the Milan-based investment bank has sat at the center of a great swath of the economy connected through its stakes in industrial companies.
Deals were cut in its salotto buono, the figurative salon where an elite clique of bankers, industrialists, politicians and families that dominated Italian political and economic life in the second half of the 20th century gathered. But controlling power and influence has not always been profitable. In these hard-nosed times, the bank’s shareholders want to see financial returns on their capital, even as regulators’ new bank capital rules make it yet more painful for banks to hold unprofitable assets.
Mediobanca’s new chief executive Alberto Nagel is giving his shareholders what they want. He says he will sell €2 billion ($2.6 billion) of the bank’s industrial holdings over the next two years, and focus on being a bank in capital-light but fee-heavy businesses such as wealth management and private banking. The plan aims to lift Mediobanca’s return on equity to 10%-11% by 2016. It is 6% today.
Just how unprofitable some of its industrial holdings are is shown by a €400 million write-off Nagel plans to book immediately. That will cause Mediobanca to report a loss of €200 million for its financial year to June 30, he says. It should, though, make disposing of the stakes easier.
One sale already identified is part of Mediobanca’s 13.2% stake in Italy’s largest insurer, Generali. Other candidates are its holdings in RCS Mediagroup, owner of the Corriere della Sera newspaper, and in Telco, the largest investor in the domestic phone giant Telecom Italia. Generali is a fellow investor in Telco, a example of the interlocking web of shareholdings Mediobanca has woven.
While Mediobanca’s new strategy marks the end of an era in Italian business, it can be argued — strongly — that it is an era that had long outlived its usefulness in rebuilding Italy’s war torn industrial base after World War II, and that the complex network of corporate structures that its control necessitated held back a large number of Italian companies from developing into successful multinationals. Many of Italy’s most successful international companies today were built by entrepreneurs never able to gain entry to the establishment that Mediobanca fostered.
That inward-lookingness is true of Mediobanco, too. Nagel says part of his new strategy is to expand into markets such as Latin America, China and Turkey, raising the share of its revenue it gets from outside Italy to almost a half from less than a third today. Venturing beyond the well-heeled but ultimately incestuous salotto buono won’t be easy. Nagel is taking only baby steps, but they are long overdue for both bank and country.