Not so popolari

By A.F.

MATTEO RENZI, Italy’s prime minister, heralded it as “historic moment”—not a phrase usually associated with reform of banking regulation. The announcement, by executive decree, of new governance rules for the country’s biggest banche popolari, or mutual banks, is as welcome as it is overdue. A plethora of mergers and takeovers may be on the cards.

Mr Renzi’s reforms will see the biggest ten populari transformed into joint-stock companies over next 18 months. The system whereby shareholders are entitled to a single vote each regardless of the size of their stake will be abandoned. That will make it more difficult for unions to quash potential mergers, as has happened in the past. “After twenty years of debate we are intervening,” Mr Renzi continued, explaining that Italy’s banking system has too many banks and too little credit. Analysts welcomed the move, which is one of a series of measures aimed at attracting foreign investment to Italy. Bank shares rose following the news. Italy boasts 780 banks and more branches per person than any other member of the

Organisation for Economic Co-operation and Development

, a club of mostly rich countries. They have high costs and some of the lowest interest margins and returns on assets in the European Union. The hope is that consolidation could strengthen the banking system as a whole. In recent years successive governments have sought to tinker with the popolari system, but to little avail. Things now look set to shift. The reform still faces hurdles.

The decree must be approved by parliament within 60 days, and Mr Renzi faces strong opposition from both within and outside his government.

The popolari were set up in the 19th century, based on the German model, to serve the interests of local small- and medium-sized businesses. As a result, they have remained deeply tied to Italy’s regions, and to the Catholic Church, which oppose change. On January 20th the front page headline of Avvenire, a Catholic newspaper, denounced the new policy as a “mistaken reform”.

Still, the hope is that the reform will pass—even if some modifications are made—and that it will send an important signal to foreign investors, as well as the European Central Bank (ECB), that Italy is serious about reform. Pier Carlo Padoan,

Italy’s finance minister,

has denied suggestions that the government engineered the decree in order to save Monte dei Paschi di Siena (MPS), a troubled Tuscan bank which failed the ECB’s stress tests last autumn. He went on to say that all banks would be helped by building a market that functions better in terms of access to capital.

The most likely consolidation, according to analysts, should anyway take place amongst the popolaris themselves. Even if all ten merged, their combined assets would come to just €530 billion ($599 billion), just half the figure for UniCredit, Italy’s biggest lender.

There is no suggestion of such aggressive concatenation, but plenty of bankers will be checking out their rivals. UBI, one of Italy’s most solid lenders, is thought to be the most interested party, with Banco Popolare, Banca Popolare di Milano, Banca Popolare dell’Emilia Romagna, and Banca Popolare di Vicenza also in line for potential mergers. The process of integration could be messy, but bankers are not there to be popular.