Dateline-Milan: Fall of Italy's high priest of banking

ON THE surface nothing has changed. Each weekday morning Enrico Cuccia, the 91-year- old high priest of Italian finance, leaves his Milan apartment shortly after eight. His hunched figure in navy wool coat with matching hat and cashmere scarf moves purposefully across the piazza in front of La Scala opera house to his office at No 10 via Filodrammatici, the headquarters of Italy's only real merchant bank, Mediobanca.

But the dramatic events of the past month mean Cuccia, who has pulled the strings of Italian finance for half a century, is no longer the puppet master; his marionettes have begun to move by themselves and he risks finding himself sidelined.

Sunday is normally a sacred day of rest for Milan's driven financial community. But by the evening of 21 March, two friendly takeover bids by Italian banks totalling $26bn had changed Italian credit for ever.

Unicredito Italiano, the country's biggest bank in market capitalisation, launched a $16.4 play for its rival Banca Commerciale Italiana, to create "Eurobanca", to become Italy's largest financial institution.

Hours later that record was broken when Turin-based San Paolo-IMI, Italy's biggest bank in terms of assets, had offered $9.7bn dollars for Banca di Roma. Both share-swap deals depend on shareholder acceptance and approval by the stock market watchdog. Never had two such massive deals been struck without the blessing of Enrico Cuccia. Mediobanca had been gambling on a merger between Banca Commerciale Italiana and Banca di Roma. As the deals were finalised, Mediobanca executives were barricaded in their 16th-century palazzo headquarters with the press outside. Cuccia had forgone his usual Sunday afternoon tea at the Caffe Ambroeus in a desperate attempt to orchestrate a counter-attack.

The deals mean a transfer of power that would seriously undermine the independence of the merchant bank and leave it exposed to predators. Sixteen per cent of the capital of Mediobanca would be in the hands of Unicredit- Comit and 8 per cent with San Paolo-Banca di Roma.

The irony was that Enrico Cuccia, who countless times bailed out the big names of Italian industry, from Agnelli to Ferruzzi to Pirelli, now has to try to save himself.

The enigmatic Sicilian banker is arguably the most influential economic figure in postwar Italy. Mediobanca was born on10 April 1946, on the initiative of the liberal banker Raffaelle Mattioli. Cuccia, already identified as a financial whizz, was put in charge.

Its aim was to serve the needs of industry after the Second World War but Cuccia soon widened that brief, turning it into Italy's first merchant bank during exceptionally rapid growth in time for Italy's "economic miracle" of the Sixties.

Cuccia forged alliances with the big family dynasties of Italian capitalism. The Agnellis of Fiat, the Pirelli tyremakers, the Ferruzzi agrochemicals empire, the DeBenedetti family at Olivetti were all part of what became known as the salotto buono - the exclusive drawing room of Italian industry. Cuccia protected them from foreign predators and from the state. He also set up a complex web of cross-shareholdings that linked the various planets in the Mediobanca galaxy.

These inter-related companies would support one another in times of difficulty and avoid having to resort to share issues or bank loans.

Giuseppe Turani, editor of Uomini e Business magazine, says: "Cuccia ensured the various figures on the economic scene didn't scrap among themselves. He decreed when someone should make an exit, certainly not competitors or the free market.

"Secondly, when a group was in deep crisis, everything came to a halt and Cuccia moved in. He had a good look at the books, called in the banks (often ordering them to provide credit or underwrite highly risky recapitalisations) and at times he sorted out new managers."

Crucial to Cuccia's overall strategy were the three then state-controlled banks, the Banca Commerciale Italiano, Credito Italiano and Banca Nazionale del Lavoro. They held stakes in Mediobanca and could be called on to provide cash when required. The relationship was perverse; instead of shareholder banks controlling Mediobanca, Cuccia issued the orders.

The success of Mediobanca was due to Cuccia's extraordinary financial acumen but also his personality. He has never given an interview and attends public functions reluctantly. Photos of Cuccia, with his heavily lidded eyes, high forehead, thick lips and hunched shoulders are rare. There is an underground tunnel that links Mediobanca to the next door palazzo, allowing staff and clients to come and go without being noticed.

Among the few journalists to have met Cuccia is Piero Ottone, a former editor of Corriere della Sera.

He said: "[He is] a man of exemplary integrity and rigorous principles in his personal life, who received a modest salary and conducted a modest lifestyle, although he backed some dubious characters. When told he'd supported someone that he himself defined a thief, he would point to the chairs on which his visitors sit, saying, 'If you only knew how many rotters have sat there'."

Ottone says much of the enigma of Cuccia can be explained by his deeply ingrained Sicilian culture. "That demands absolute loyalty in exchange for loyalty. To the men he supported he would forgive almost anything, but not betrayal."

Critics say Cuccia hampered competition, prevented Italian companies from "growing up", stopped the banking sector from developing and sold minor shareholders short. Romano Prodi, the recently nominated President of the European Commission, once described the power of Mediobanca as "a threat to economic democracy in Italy".

For some commentators the advent of European Monetary Union sounded the death knell of the Cuccia-Mediobanca- Italian capitalism system. Cuccia's flaw, they argue, was pride, thinking he could resist change rather than adapt to it.

They also point to the deterioration of two specially close relationships; with Italy's most powerful family, the Agnellis, and with Lazard Freres.

For years Cuccia had a close rapport with the mythical Andre Mayer, Lazard's founder. The two banks share control of Assicurazioni Generali, one of Europe's biggest insurance firms, but the relationship has turned frosty. When one of Mediobanca's most promising middle managers Gerardo Braggiotti, was sacked in December 1997, he became senior partner in Lazard. Proof that loyalties no longer lie with Cuccia showed when Fiat helped to organise the San Paolo-Banca di Roma deal - it holds shares in both - and Lazard brokered the Unicredito deal.

Many point the finger at Mediobanca's managing director, 61-year-old Vincenzo Maranghi, Cuccia's dauphin. They say he lacks vision, makes strategic errors and is responsible for a run of failures that marked the decline in Medio-banca's power. Apart from snubbing Umberto Agnelli, brother of patriarch Giovanni, and irritating Deutsche Bank, Maranghi has also made enemies in much of the banking establishment.

"Cuccia is arrogant but he is a genius," said Fabio Tamburrini, author of A Sicilian in Milan, a biography of Cuccia. "Maranghi has always displayed incredible arrogance while making mistake after mistake."

More signs that Mediobanca was waning came with the failure of the 1996 Supergemina project, a fusion that would have saved the Ferruzzi group, another family holding. The revelation of massive losses in Gemina and the intervention of a magistrature thwarted that.

Last year, Piero Marzotto opposed the marriage, matched by Cuccia, of his textile group with another conglomerate, HDP. And a two- year campaign to wed Banca Commerciale and Banca di Roma failed acrimoniously the week before the Unicredito and San Paolo deals. If both mergers proceed, there are question marks over the future of Cuccia and the bank he founded.

Should he step aside, there are no obvious successors. Conflict with Maranghi has seen an exodus of top management since 1996.

Whoever is in charge, Mediobanca will change. It may try to carve a strictly merchant banking role, divesting itself of its stakes in Italian companies. If it is the subject of a takeover bid, it could divest itself of only minor holdings, remaining essentially as it is, but fused with the raider.

"It's not a large or structured organisation," says Fabio Tamburrini. "There are only 300 employees. It's a boutique so it will be difficult for them to compete solely in that sector."

There are jewels in the Mediobanca portfolio. It holds strategic share packets in appetising companies such as Generali and SAI (insurance) Pirelli (tyres) Compart(chemicals) HDP (media and textiles) Falck and Fondiaria (steel). The presence of Cuccia has always been a protection for these companies against marauders. In future their only defence will be staying competitive and seeking strategic alliances themselves.