Reuters - Financials

UPDATE 1- Italian bank UBI approves landmark reform, M&A looms

Oct 10 Shareholders in Italian cooperative bank UBI approved on Saturday its conversion into a joint-stock company as requested by a government reform that is expected to lead to a wave of mergers among domestic lenders.

The reform is a pillar of Prime Minister Matteo Renzi’s agenda to shake the euro zone’s third-biggest economy out of the doldrums and modernise its crowded banking system to revive lending and boost profits.

It is expected to reduce the number of mid-sized lenders through tie-ups that could create Italy’s third biggest bank, after Intesa Sanpaolo and UniCredit.

UBI, Italy’s fifth biggest lender, was the first of the 10 cooperative banks affected by the reform to approve the changes, which scrap voting rules giving shareholders one vote each regardless of the size of their stake.

The lender’s top shareholders at present are U.S. fund BlackRock and London-based Silchester International Investors with a stake of just under 5 percent each.

Critics of the “one-head, one-vote” rule say it has helped distort governance allowing minority shareholders to block unwanted change. Those rules have also long been seen as an obstacle to mergers and Renzi’s decision to scrap them is backed by the European Central Bank (ECB), which last year took over supervision of the euro zone’s banks.

“It’s not just the government and the Bank of Italy, but also the ECB, the International Monetary Fund, the Basel Committee (of banking supervisors). All the authorities are in favour of these changes,” Andrea Moltrasio, chairman of UBI’s supervisory board, told shareholders.

However, the new rules face resistance from some shareholders and local vested interests that have long held sway over the country’s cooperative banks, known as “popolari”. Unions are also wary, fearing massive job cuts.

“We won’t tolerate mergers that will entail a bloodbath in terms of layoffs,” said Lando Silleoni, a UBI employee and the secretary general at FABI, the biggest banking union. “We also need to be careful not to fall prey to foreign groups.”

To blunt the impact of the changes, UBI has introduced a limit on voting rights at 5 percent until March 2017.

Banks have until the end of 2016 to adopt the new rules, but the reform faces a string of legal challenges that could delay its implementation and the merger deals expected to follow it.

Several bankers have said that aside from the lawsuits, merger talks between the main popolari banks are also failing to bear fruit because of disagreements on where headquarters should be located and who should be in charge of the combined groups.

Sources have said UBI is likely to seal a merger with Banco Popolare, but most deals are not expected to see the light until next year. Both banks have declined to comment.

The bulk of cooperative lenders have scheduled shareholder meetings to vote on the new rules in the second half of next year, in a sign they are in no rush to embrace the changes. (Reporting by Silvia Aloisi; Editing by Crispian Balmer)

Reuters: Financials

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