Sanpaolo IMI S.p.A.
Sanpaolo IMI S.p.A.
Employees: 35,729 (2000)
Total Assets: EUR 171.0 billion (2000)
Stock Exchanges: Borsa Italiana (BI) New York
Ticker Symbol: SPI (BI); IMI (New York)
NAIC: 522110 Commercial Banking
Building on a more than 400-year-old history of being managed by charitable foundations, the Sanpaolo IMI S.p.A. enters the 21st century as one of the largest banks in the world. In addition, the bank is still committed to helping the less fortunate throughout the northern Italian economic center where it began and beyond. Whether that will be true in years to come remains to be seen: modern analysts believe that continuing part ownership by charitable foundations will render the bank less able to compete in an increasingly global world market.
Due to a number of mergers that occurred mostly in the later part of the 21st century, the Sanpaolo IMI S.p.A. worldwide banking conglomerate of 2002 comprised three companies: the Instituto Bancario San Paolo di Torino, the Istituto Mobiliare Italiano (IMI), and the Banco di Napoli. Both Sanpaolo and Banco di Napoli have origins dating to the 16th century, but IMI is a relatively new institution, having been founded in 1931 (as a result of Italy’s industrialization) as a medium- and long-term lending support institution.
Sanpaolo IMI began in this northern Italian town in 1563, near the end of the Italian Renaissance. It was established as a charitable foundation, with both giving and banking activities, under the name of Campagnia della Fede Cattolica sotto I’Invocazione di San Paolo.
Sanpaolo was centered in the city of Turin (i.e., Torino), part of the northern region of Italy long known for its commercial prosperity, starting in the 11th century. The Renaissance, during the 14th and 15th centuries, was a period of great artistic and musical achievements that has had lasting affects in Western culture today. Among them, the period strengthened the idea of a single nationality and the nationalist movement that occurred in Italy in the early 19th century.
Banco di Napoli originated with the foundation of the Sacro Monte di Pieta in 1539. Several regional credit institutions merged in 1809 to become the Banco delle due Sicilie, which was later renamed the Banco di Napoli when the reunification was complete and Kingdom of Italy proclaimed in 1860.
The Twentieth Century
The Italian-Turkish War in 1911 had a substantial effect on Italian economy. In particular, government expenditures financed by a large issue of five-year treasury bonds led to higher rates of inflation, a problem that persisted even into the next century. During WWI, Italy renounced an alliance with Germany, siding with the Allies. And, in 1922, Benito Mussolini took over and installed a fascist dictatorship known as the Corporate State.
Italian banks survived this period by facilitating material imports. Many were pushed to participate in wartime and other industries. Before the war, Italy’s major banks were largely competitive. During the war, however, businesses and the government increased pressure for credit, which decreased the competition among banks. Then, in 1918, the larger banks formed a cartel to coordinate the rationing of credit and establish common policies.
The rampant and ill-planned growth of the early 20th century did not continue after the war, and the decreased activity in turn led to a depression in Italy. By 1921, businesses started to fail, slowing the growth of banks. By the 1930s, businesses were going bankrupt and the banks were severely affected. In 1933, the government stepped in to save the failing industry, creating the IRI, a government holding company that was intended to be a temporary organization.
The 1930s brought a period of regulation and reorganization among Italian banks. In 1931, IMI was established as a public law entity. The following year, Sanpaolo became a public law credit institution.
In 1936, Italy passed the Banking Law, which remained the main legislation governing Italian banks into the early 1990s. Under this reformed banking regulation, IMI focused on medium- and long-term lending, including lending for public works projects. Sanpaolo, meanwhile, remained centered in northwestern Italy and focused on short-term commercial banking, with divisions for mortgage activities and industrial lending. Banco di Napoli, one of the largest banks in the nation at the time, played a pivotal economic role in the financial development of Italy’s southern region.
World War II and Beyond
In 1940 at the onset of World War II, Italy joined Germany in declaring war on France and the United Kingdom. The following year, it joined Germany and Japan to declare war on the United States. An anti-fascist movement, however, harassed German forces and eventually drove them out of Italy, before the monarchy ended in 1946. Mussolini’s inability to dictate an effective economic strategy severely affected the nation’s economy, and it was not until the 1950s and 1960s that the growth of exports led to sustained, long-term growth for the first time in a long time.
In 1969, the U.S. Federal Reserve Board began a policy of monetary restraint. Funds began flowing in the United States, and the Italian economy, forced to adjust to high U.S interest rates, was among those to suffer as a result. As domestic growth slowed, Italy reinvested itself overseas—as well as it could, with the nation’s banking activities largely regulated by Italy’s central bank, the Bank of Italy.
In the 1970s, many domestic clients began to demand increased services abroad, and banks accommodated them by expanding and opening branches in other countries. The oil crisis, which started in 1973, had a severe affect on Italy’s economy, giving rise to high inflation and a growing public deficit. In 1976, the lira plummeted against the U.S. dollar. Adding to that instability, Italians feared that the growing Communist party might win election that year over the nation’s longstanding party, the Christian Democrats.
In the later part of the decade, Italian banks were called upon to rescue some of the country’s failing industrial groups, including some under state control. Bankers responded with concerns that banks would be forced to absorb the failing companies’ losses.
In the next decade, losses from state-owned companies continued to increase, and by 1982, the IRI decided to raise money by issuing bonds and improving its relationship with the private sector. The economy was stronger by this time, however, and the Bank of Italy was able to relax some of its constraints on the banking industry. This allowed for more domestic competition and lower exchange controls. Eventually, the Bank of Italy, Italy’s central bank and a public law institution since 1936, removed lending ceilings and began supporting previously denied requests for opening branches. The move helped institutions such as Sanpaolo expand beyond the regions in which they had operated for hundreds of years.
In the mid-1980s, decline of the U.S. dollar and the collapse of oil prices further boosted the Italian economy. While the economy surged, the money supply quickly increased. In 1987, the Bank of Italy responded by attempting to re-impose credit ceilings, and the approval of bank expansions led to heated discussions about reforming the stock exchange and the role of banks in the market in light of the coming single European monetary market.
In the late 1980s, there was a trend by Italian banks to join with insurers in an effort to broaden the range of services available. Nevertheless, the October 1987 stock market crash led to profit drops at Italian banks that year.
By the end of the decade and into the early 1990s, the Italian banking industry was once again the subject of reformation. Throughout the decade, alliances and joint ventures became increasingly commonplace. National banks in Italy, faced with the challenges of an increasingly global economy, acquired local commercial banks and the result was a significant increase in powerful and massive cross-functional banking groups.
Under a 1990 law, Italian banks (including savings banks and various credit institutions) were required to spin off banking activities into joint-stock corporations. Ownership shares of these corporations went into newly established charitable foundations. But, over the next decade, only nine foundations withdrew from spun-off banks. (Among them was the Fondazione Cassa di Risparmio di Venezia, which sold an 11 percent stake in Banca Cardine to Sanpaolo IMI at the beginning of 2001.)
The 1990 anti-trust law gave the government the right to review acquisitions where the merged entity would have combined sales of over 500 billion lire (adjusted over time for inflation). And, it gave the government the authority to block mergers under certain conditions, allowing certain industries to be more closely regulated or allowing the government to prohibit outright the involvement of foreign investors.
Sanpaolo IMI’s market position is based on its leadership in the retail savings market where it offers everything from current account and deposit facilities to sophisticated asset management products and in the business sector with leadership in corporate and investment banking. With the addition of Banco di Napoli, it extends its strengths from its traditional heartland in the north of Italy through to the south.
As part of that reformation in the early 1990s, the Bank of Italy again relaxed its rules on opening new branches in Italy. This gave Sanpaolo the encouragement it needed to expand beyond its traditional home base in Turin. The government also began encouraging banks to get more involved with private-sector activities supporting a series of legal measures (such as tax incentives) that aimed to strengthen the financial structure of Italy’s banking system. The first of these was called the Amato Law and these reforms led charitable foundations with banking activities, such as Sanpaolo, to separate into businesses and charities through the sale of stakes in state-controlled banks, such as IMI.
Pursuant to the new law, Sanpaolo was established in early 1992 as San Paolo di Torino Societa per Azioni with 21 percent of its capital floated in Italy and shares traded publicly. IMI also became a “Societa per Azione” in 1991. In 1994, through the government’s continuing privatization campaign, IMI took part in a global offering with more than a third of its shares listed on various stock exchanges; sales to institutional investors continued through 1996.
Sanpaolo bank’s charitable foundation counterpart, the Compagnia di San Paolo, remained a majority stakeholder until 1997 when nearly a quarter (22 percent) of Sanpaolo’s share capital was sold to 10 medium- and long-term shareholders. With the Bank of Italy’s approval, another third (31 percent) was sold in public and global offerings.
This was a major directional change for the bank. When owned by a charitable foundation, Sanpaolo’s board members in the past had ranged from city hall appointees to renowned authors, and they were often selected more for their cultural ingenuity than banking acumen. Some industry specialists at that time felt that bank foundation members tended to be more concerned with politics and personal power than turning a profit (sitting on the bank board was known for resulting in prestigious or lucrative appointments and other types of personal gain).
In 1997, Chairman Gianni Zandano said he wanted to change that system, in effect ending some 434 years of local control, by fully privatizing the company. Zandano decided the bank should focus less on philanthropy and more on profitability, an idea that was revolutionary for the Italian banking industry. For hundreds of years, the bank had been owned by charitable organizations and focused on spending money, rather than making it.
“The real problem of Italian banks is there’s never been a shareholder holding a whip,” Zandano told Wall Street Journal reporter Maureen Kline. He saw privatization as an opportunity for the bank to find local partners and reinforce its image as the bank from Italy’s financial heartland. It was not only the institution of Sanpaolo that saw the need to adapt. In the last half of the decade, the banking sector worldwide went through a phase of rationalization and consolidation, influenced in part, and especially in Italy, by the advent of the European economic and monetary union.
With the European Union (EU), many Italian bankers and industry advisors saw the need for Italian banks to replace their medieval structures with more profit-driven, growth-oriented models. Italian banks were among the least profitable and most fragmented in Europe. According to the Italian Banking Association, the average equity return for Italian banks was only 2 percent, compared with 8 to 18 percent for those in Germany and the United Kingdom. Sanpaolo was the largest of Italy’s 1,000 banks, yet it did not even rank among the top 20 in Europe.
Throughout Italy, bankers expressed concern that, at their current size, Italian banks would be “eaten alive” when they joined the EU. To encourage change, the Italian government drafted a bill giving incentives to banks that merged and privatized, with added incentives for making those changes quickly. Managers of both Sanpaolo and IMI determined that, in order to compete effectively in the changing banking environment, they needed to merge with an effective partner and create a bigger organization; they saw this as both a strategic move and one that would provide a basis for future consolidation and aggregation.
- The Sacro Monte di Pieta is founded.
- San Paolo di Torino is founded as a charitable foundation.
- Several regional credit institutions merge to become the Banco delle due Sicilie.
- The Banco delle due Sicilie is renamed the Banco di Napoli during the reunification of Italy.
- Istituto Mobiliare Italiano (IMI) is established to provide medium- and long-term lending in support of Italy’s industrialization.
- Italy joins the agreement (known as the Treaty of Rome) to establish the European Economic Community, which later becomes the European Union (EU).
- Instituto Bancario San Paolo di Torino becomes the first bank to offer corporate home banking services in Italy.
- A restructuring project planned by the Instituto Bancario San Paolo di Torino leads to the creation of the Instituto Bancario San Paolo di Torino S.p.A.
- Italy’s Istituto Bancario San Paolo di Torino and Istituto Mobiliare Italiano (IMI) merge to become Sanpaolo IMI, Italy’s largest bank with assets in excess of $200 billion.
- Sanpaolo is the first Italian bank to receive approval for a Section 20 license from the U.S. Federal Reserve Bank.
- Sanpaolo acquires Banco di Napoli, a regional bank in Italy.
- The company acquires a 10.9 percent interest in the Bank of Cardine, the Turin-based regional 800-branch bank, for around 1 trillion lire ($464 million).
- Sanpaolo IMI announces plans for a merger with the Bank of Cardine and acquires a majority stake in Slovenia’s fourth-largest bank, Banca Koper.
So, in November 1998, despite longstanding resistance to change and an industry tradition of patronage, the Instituto Bancario San Paolo di Torino S.p.A., Italy’s largest retail bank, merged with the investment bank and mutual fund manager, Istituto Mobiliare Italiano S.p.A. This led to the creation of Sanpaolo IMI S.p.A., which continued into the next century under the leadership of former IMI General Manager Rainer Stefano Masero. The following year, the Euro officially appeared in the Italian market (replacing the Italian lira altogether by 2002), and Italy joined the Euro Monetary Area, which allowed for a fixed exchange rate across all member European countries.
The Twenty-First Century
Sanpaolo IMI was to grow again—geographically, as well as financially—in 2000 when it bought the Banco di Napoli; the acquisition included both the former Gruppo Banco di Napoli and its parent organization. (Previous to this, Sanpaolo lost its ranking as Italy’s largest bank when Banco di Napoli, recapitalized and stripped of its bad loans, was sold and merged with Banca Nazionale del Lavoro S.p.A. Despite its near collapse and recovery, the bank remained inefficient prior to its sale to Sanpaolo.) Banco di Napoli brought to the group another 731 branches, mostly in southern Italy, a move that significantly complemented Sanpaolo’s existing (mostly northern Italian) network.
Analysts said officials at both banks felt they needed to grow to avoid being taken over by foreign banks. The result of this latest consolidation was the Sanpaolo IMI Banking Group, which reported by year’s end assets in excess of Euro 172 billion and total customer assets of Euro 304 billion. The group’s return on equity that year was a notable 18.1 percent (just under Euro 1.3 billion); by midway through the next year, that amount had increased to 19 percent. According to the Economist, Italian banks previously were rated as tiny by world standards; now, thanks to new mergers in Italy, including Sanpaolo and the UniCredito Italiano bid for Banca Commer-ciale Italiana, Italian banks placed in the top 10. By the turn of the century, Sanpaolo and UniCredito had combined assets in excess of L 1.1 billion.
Still early in the development of the EU, Italy’s outlook for economic recovery looked positive, though it continued to lag behind its European counterparts and remained plagued by slow economic growth. The national debt had fallen, though it remained above the EU guidelines. Inflation remained high, increased by rising oil prices and government cutbacks. Unemployment hovered at a significant 10.5 percent in 2001 (though down from the previous year). And in March 2001, Fiat announced a joint venture with General Motors, claiming it could no longer compete in the global market.
The period of reformation and revitalization among banks continued. In 2000, Sanpaolo again strengthened its domestic ties, formalizing an agreement with the Cassa di Risparmio di Firenze that called for expanding operations in central Italy, where the Tuscan bank had a network of more than 400 branches.
In early 2002, Sanpaolo IMI was busy working out the details of another prospective merger, this time with the 800-branch Bank of Cardine. (Sanpaolo IMI already owned one-tenth stake in Cardine from the previous year.) Organizational and profit objectives were still to be worked out. Early details of the merger included a plan to retain Cardine’s strong corporate identity, while helping Sanpaolo IMI expand into markets in Central and Eastern Europe. Measuring resources by capital, the move was expected to bump Sanpaolo IMI from third to second place among the Italy’s largest banks.
Also, allowing for additional Eastern European expansion and still pending in early 2002, was Sanpaolo IMI’s intention to purchase a majority stake in Banca Koper, Slovenia’s fourth-largest bank. Announced in late 2001, that deal would provide Sanpaolo with another 37 branches and 7 percent of the Slovenian market. Sanpaolo planned to purchase a 52 percent stake and make a public offer for another 18 percent on the Ljubljana Stock Exchange. Both Italian and Slovenian authorities were expected to approve the deal in 2002.
With all this activity and in spite of the decade-old law that sought to discourage an involvement in banking, large regional nonprofit foundations in Italy continued to participate on a grand scale. Mergers across the industry at the end of the 20th century brought numerous large banks within their purview, and the trend seemed to be continuing into the next decade. Although the minister responsible for the 1990 law had since called his creation a monster, the measure didn’t have completely negative outcomes. The law has required the foundations to spend their income on education, culture, health care, conservation and other endeavors for the deprived. Endowments over the past decade helped the elderly, funded museum restoration projects, and even provided aid to Italian-Americans affected by the U.S. terrorist attacks on September 11, 2001.
Whether the law was indeed a monster was still under debate, but certainly the foundations showed an undiminished appetite. In turn, this continuing control led many industry analysts to express concern that large banks in Italy were still in need of reform. The centuries-old foundations retained serious financial clout and, according to some, that was creating a barrier to faster consolidation among Italy’s financial institutions.
In December 2001, Italy’s Economic Minister Giulio Tremonti announced a new measure in the national budget, which would require the country’s former banking foundations to identify nonprofit entities for channeling a significant part of their profits. The amendment simultaneously sought to prevent individuals from holding key posts on the boards of the foundations, along with positions in banks; it was a move that analysts felt would discourage those foundations from continuing to invest in the Italian banking sector.
With much to be determined in 2002, Sanpaolo’s outlook as a world-class bank remained in many respects positive. Still among the nation’s largest banks, the company boasted a full range of banking and financial services to corporate clients in Italy and around the world (including offices in Europe, Asia, and the Americas). The bank had a network of 1,300 branches throughout the country, but particularly in the financial centers of Turin, Milan, and Genoa, employing some 35,000 people in 2,170 offices worldwide.
Retail banking operations included the Sanpaolo network and the Banco di Napoli, as well as Banque Sanpaolo of France, the Inter-Europa Bank in Hungary, and the Cassa Risparmio Firenze. They also included fund manager Banca Fideuram, San Paolo IMI Asset Management, and the online brokerage company IMIWeb Bank. While continuing to provide basic banking services and loans to small- and medium-sized companies, the bank focused its services in four main areas: retail banking, wealth management, personal financial services, and wholesale banking. Those services included not only remote banking facilities, but a full range of retail payment services, with 1,800 automated teller machines (ATMs) and more than 2 million debit and credit cards.
IntesaBCI; UniCredito Italiano; Banca di Roma; Mediobanca.
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Booth, Michael, “Online Retailers Getting Free Ride,” Denver Post, March 23, 2000, p. B2.
Mandaro, Laura, “With Merger Finalized, SP-IMI Plans Section 20,” International Banker, December, 14, 1998, p. 1.
“Finance and Economics: Odd Sort of Ownership; Italy’s Charitable Foundations,” The Economist Newspaper, October 27, 2001, p. 70.
“Italian Investors Buck Tradition and Back Funds,” Funds International, July 1, 1998.
“Italy’s Largest Bank Is First to Get Sec. 20, International Banker, February 8, 1999, p. 1.
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O’Brian, Heather, “Italy Seeks to Curb Control of Banks,” The Daily Deal, December 4, 2001, http://thedeal.com.
——, “Sanpaolo Buys Majority of Slovenian Bank,” The Daily Deal, October 30, 2001, http://thedeal.com.
——, “Sanpaolo IMI and Cardine Outline Merger Plan,” The Daily-Deal, October 19, 2001, http://thedeal.com.