Northern Banks Fish in the South for Growth

By Sharon Singleton
BLOOMBERG NEWS

Franco Bizzocchi remembers what his competitors said when Credito Emiliano began buying southern Italian banks in the 1990s. "Our decision was called eccentric, bizarre," said the chief executive of the 90-year-old bank based in Reggio Emilia, in the Northeast of Italy, that made 19 acquisitions in the South in the last decade.

Now his rivals are doing the same thing. Banks in the North want to get bigger, and they're willing to put up with bad debts and crime in the South to reach new customers.

"There are still major credit problems in these regions," said Luca Comi, an analyst at Banca Leonardo in Milan. "The cost of those problems nay offset the benefits."

San Paolo-IMI, Italy's second-largest bank, on Tuesday acquired Banco di Napoli, the biggest bank south of Rome, for 2.8 billion euros. Banca di Roma, Italy's fourth-largest bank, bought Mediocredito Centrale last year for 2.1 billion euros.

Last Thursday Milan-based Banca Popolare Commercio & Industria agreed to pay U.S.$1 billion for Banca Carime, based in the toe of the Italian boot. Popolare Commercio's shares fell 11 percent the next day on concerns the bank was spending too much for a business that will not contribute to earnings until 2003.

Many of the banks, known as cooperatives with close ties to the communities in which they operate, need to grow to meet competition from commercial banks, but an unwillingness to give up independence has hindered merger plans.

Italy is divided between the prosperous North and the poorer South. Unemployment at the end of July was 21 percent in the South, compared with 4.3 percent in the North.

Still, southern Italians are likely customers for mutual funds and life insurance as they worry, along with their northern brethren, that state pension plans won't be able to meet payouts as the population ages. The number of people over 64 will likely represent 31 percent of the Italian population in 2010, compared with 21 percent in 1990.

Southern savers still keep about 50 percent of their funds in banks, a figure that is double the rate in the North, where customers are more likely to have invested in life insurance or mutual funds.

Banca Popolare di Lodi, a cooperative bank based in Lodi, a prosperous town near Milan, is now the second biggest lender in Sicily after making six acquisitions on the island in recent years. Banca Popolare di Vicenza, a cooperative bank based near Venice, set up its own bank in Sicily because it considered the few suitable targets as too expensive. Banca Nuova, as Popolare di Vicenza's Sicilian bank is called, aims to open ten branches in Sicily by the end of this year.

"The problem with acquisitions is they are more complex," said Popolare di Vicenza Chairman Gianni Zonin. "We want to become a national bank and we're starting from the South and working our way up."

Talks between Popolare di Vicenza and Banca Popolare di Novara, in Piedmont, broke down in January.

Because many southern banks are financially weaker than northern rivals, they're more amenable to takeovers. "There wasn't much resistance in buying the banks as they were all in crisis and needed a lifebelt," Mr. Bizzocchi of Credito Emiliano said.

But some investors aren't sure that heading south is the best solution.

"In the short term, cooperative banks may do better to expand where they know the culture," said Stefano Fabiani of Zenit. "There would be fewer problems of integration and having to manage companies in a very different culture."

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