NOTIFICATION: BANKING FOUNDATIONS
PRESS RELEASE
The Antitrust comes out regarding Banking Foundations
The Italian Antitrust Authority, basing its action on Art. 22 of Law No. 287/90, has notified Parliament and the Government of a competition distorting situation which could derive from the final approval by Parliament of the Bill called "Delegation to the Government of the reordering position in civil law and the fiscal discipline of the entities referred to in Art 11, Paragraph 1, of the legislative decree of 20 November 1990, No. 356 and of the fiscal discipline of the restructuring operations in banking", also known as the "Campi-Pinzi Bill", if it remains as it was when approved by the Senate of the Republic on last November 11th.
The Bill as it was originally formulated was intended to lead, by redefining the roles of banking foundations and a system that would give fiscal breaks, to the foundations spinning off their banking institutions as found in Law of 30 July 1990, No. 218, entitled "dispositions regarding the restructuring and integration of the holdings of credit institutions regulated by public law(istituti di credito di diritto pubblico)" and later modifications.
However, differently from the formula approved in the Chamber, the text of the Bill approved in the Senate, and currently back in the Chamber to be re-examined, contains two amendments which would in fact nullify the reform and could cause alterations distorting competition in the Italian economic system. On the one hand they would in fact perpetuate the presence of the foundations in the banking sector and on the other they even allow the foundations to extend the range of their involvement into other activities while at the same time maintaining their status as non-commercial organizations and the fiscal benefits to be derived from this.
The amendments in question are found in Art. 2, Paragraph 1, Letter d), which introduces, together with socially useful objectives of the foundations, other activities whose objectives are "the promotion of economic development" and Art. 4, Paragraph 1, Letter b), which states that the foundations will lose their tax benefits, if at the end of the 4-year transitory period, they still possess a "controlling stake as per Art 2359, first and second parargraph, in the Civil Code" in banking companies.
The effect of the first amendment will be to offer the foundations the possibility to become directly involved in the activities of companies in sectors different from those that are socially useful, as long as these other activities are for the promotion of economic development, allowing them for example to take stakes, even large ones, in the public utilities which are currently being privatized.
The second amendment introdues an even more restrictive meaning to the concept of control, than that of "direct or indirect control" originally used in the Bill. This solution allows the foundations to maintain investments in banking institutions which, as they cannot be considered investments giving legal control, take on, in the end, also because of the signing of specific agreements, could be interpreted to in such a way that they would leave the foundations in de faco control of the banking institutions through the use of their powerful influence.
Giving the foundations to possibility to enter activities with either socially or economically beneficial objectives, as is proposed in the latest formulation of the Bill, improperly gives to a single entity the opportunity of pursuing at the same time goals of public utility and others which are economic objectives. The absence of a clear separation between the two types of activities may have negative effects on competition in the market both for the favourable fiscal treatment granted to the foundations and for the effects that the presence of the foundations in both banking and non-banking companies could cause on the ownership of the non-banking companies and their access to the credit market.
One must consider as particularly relavant the fiscal advantages granted to the foundations if these are allowed to retain their important holdings in banks and activities in other sectors which would give the companies participating in the foundations an unwarranted competitive advantage. These fiscal advantages could be translated by the foundations into a greater capacity to offer credit support to the companies in which they have interests than private investors have, obviously if the market is distorted to favour one group, other groups are working at a disadvantage.
Aside from this is the fact that, if the foundations have a large direct investment in companies, this might cause, an unjustified rigidity in the ownership structures of the companies in question because of the different contestability in which property rights of private stockholders and foundations are characterized. This phenomenon could lead, particularly because of the special nature of the foundations and to the interests they represent, to irresponsible management decisions in an important group of companies and the inevitable weakening of normal economic and competitive dynamics of the relative markets.
Keeping in mind all the foregoing, the Antitrust Authority thinks competition in the markets will be best served if the notion of control is returned to the wider definition found in Art. 23 of the Unified Legal Text where it refers to banking and the credit industry and that in any case all investment stakes held by the foundations in sectors which are not included among those defined as socially useful should be handed over to professional managers. Implementing this last suggestion should be enough to cut any institutional links between the foundations and the companies in which they hold stakes, that is on the understanding that obviously handing over the management of these investments, in non-socially useful entities, over to professional managers removes the companies in which the stakes are held from any form of control by the banking foundations. And furthermore, in this way the foundations would maximize the returns on their stock portfolios which could then be used in their promotion of socially useful objectives.
In conclusion, the Antitrust Authority considers that the amendments introduced by the Senate at Art. 2, Paragraph 1, Letter a) and at Art. 4, Paragraph 1, Letter b) of the Bill allow the foundations to maintain de facto control of the banking companies in which they hold shares and to carry out activities in any economic sector, causing a profound modification to the original meaning of the reform and at the same time introducing significant distortions in the competition area.
It is hoped by the Antitrust Authority that the Bill which is definitively approved by Parliament will take into account the necessity of protecting competition in the Italian economic system.