Capitalia S.p.A.

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Capitalia S.p.A.

Viale Tupini 180
Roma I-00144
Italy
Telephone: +39 06 5445139
Fax: 39 06 54452351
Web site: http://www.capitalia.it

Public Company
Incorporated: 1992 as Banca di Roma
Employees: 28,000
Total Assets: EUR 128.38 billion ($159 billion) (2003)
Stock Exchanges: Borsa Italiana Frankfurt
Ticker Symbol: CAP
NAIC: 551111 Offices of Bank Holding Companies

Capitalia S.p.A. is a holding company created in 2002 as Italy's fourth largest bank, with total assets of EUR 128.38 billion ($159 billion)—ranking the company among the world's top 50 banks in 2003. The largest of Capitalia's assets is the Banca di Roma. Other banking assets include the southern region's Banco di Sicilia and northern region banking group Bibop-Carire. Together, the banks allow Capitalia to operate a national network of banking branches offering the full range of traditional commercial banking services and products. In addition to its banking operations, Capitalia also owns a 44.7 percent stake in Fineco, which offers such consumer-oriented banking services as bancassurance, asset management, credit and leasing products, and the like. MCC, the new name for Medio Credito Centrale, targets the corporate and investment banking markets and is held at 75.4 percent by Capitalia. The company also has a significant stake in Mediobanca, Italy's powerful investment fund, and controls its own empire of mostly financial and Internet-related investments. Since 2002, Capitalia also has operated an insurance joint venture with Fiat's Toro insurance subsidiary. Although Capitalia has inherited Banca di Roma's long notoriety as one of Europe's worst banks—with a nonperforming loan portfolio more than double the European banking industry average—the company, under new leader Matteo Arpe, has launched an ambitious restructuring effort expected to be completed by the end of 2005. Nonetheless, Capitalia's past has come back to haunt it, notably through its involvement in a series of financial scandals, including the collapse of dairy giant Parmalat in 2004.

Gathering Italian Banking History in the 1990s

Capitalia S.p.A. emerged as one of Italy's top four banks as a result of a series of major events in the 1990s. The first involved the creation of Banca di Roma from the merger of Banca di Roma with Cassa di Risparmio di Roma and Banco di Santo Spirito in 1992. The three-way merger placed the majority control of the bank under the foundation behind Cassa di Risparmio, although the government maintained a significant stake of more than 36 percent. Banca di Roma was privatized in a controversial public offering in 1997, at which time Cassa di Risparmio reduced its share in the bank to 10 percent. At the time, Banca di Roma enjoyed the status of Italy's second largest event. But the massive consolidation of the Italian banking industry soon overtook the bank, and Banca di Roma itself became a subject of a takeover attempt, by Sanpaolo IMI. The Bank of Italy quashed that deal, however, in part in an effort to maintain at least one of the country's top banks outside of the rich northern region.

Instead, Banca di Roma itself joined in the consolidation effort, acquiring Banco di Sicilia in 1999 and the north's Bipop-Carire in 2002. Following the latter merger, Banca di Roma created a new holding company for itself and its other assets, called Capitalia S.p.A. That bank, with total assets of more than EUR 128 billion ($159 billion), ranked fourth among Italy's largest banks, behind Intesa BCI, Sanpaolo IMI, and Unicredito Italiano.

Despite its recent formation, Capitalia remained firmly rooted in Italy's banking history. In addition to the Banca di Roma, originally known as the Banca di Roma and created in 1880, Capitalia regrouped the histories of several notable Rome-based financial houses. The oldest of these was the Monte di Pietà di Roma, founded by a papal bull in 1539. Two other Italian banks participated in the development of what became Capitalia: the Banco di Santo Spirito, created in 1605; and the Cassa di Risparmio di Roma, founded in 1836.

Franciscan Charity in the 14th Century

Monte di Pietà di Roma was founded in the aftermath of the sack of Rome in 1527 and the famine of 1538. The rebuilding effort drained the city of credit capital and encouraged the development of usurious interest rates. In response, Pope Paul III issued a bull establishing the Monte di Pietà di Roma. The new institution, which was placed under the protection of the Franciscan Order, was established with the express and exclusive purpose of providing credit at low interest rates for the city's poor.

Successive changes to Monte di Pietà di Roma's charter enabled it to develop from an essentially charitable institution into a more traditional banking institution. This process was accomplished especially in 1617, when Monte di Pietà's charter separated its loan operations from its deposit taking operations. The bank was also obliged to record all transactions in its ledgers. Monte di Pietà also played a role in creating and circulating currency in Rome. By the end of the 18th century, Monte di Pietà's "cedole," or certificates of deposit, were accepted as legal tender in Rome.

Monte di Pietà was forced to suspend its operations for a time during the French Revolution. Following France's invasion of Italy in the early 1800s, Monte di Pietà lost its independence, and in 1814 was placed under the direction of the Vatican's Treasurer General of the Apostolic Camera. After Rome was annexed to the Kingdom of Italy in the mid-19th century, Monte di Pietà came under control of the Italian government. The bank began expanding beyond its single site in the early 20th century, adding a number of branches in Rome starting in 1908. At last, in 1937, during the banking crisis that led to the nationalization of Italy's banking industry, Monte di Pietà was placed under the control of the Cassa di Risparmio di Roma.

Roman Banking Leader in the 19th Century

Cassa di Risparmio di Roma had been established just 100 years earlier, backed by the famed Borghese and other of Rome's important noble and merchant families. Created in 1836, the Cassa di Risparmio di Roma's charter established the savings bank with the specific purpose of serving the lower classes, imparting to the city's poor such values as thrift and economy. In this respect, the new institution followed a prevailing trend of the time, which sought to replace traditional charitable activities with means of encouraging the poor to accept responsibility for their own financial situation. Cassa di Risparmio itself was set up as a nonprofit institution.

Initially situated in the Palazzo Borghese, Cassa di Risparmio grew strongly into the mid-19th century, becoming the city's leading savings bank in total deposits. By 1862, the bank had outgrown its original quarters and in that year acquired the Piazza Sciarra. Work began on remodeling the Piazza soon after, but Cassa di Risparmio only moved to its new headquarters in 1874.

By then, the bank had become an important part of the Italian economy—the annexation of Rome, and its subsequent emergence as the capital city of the newly unified Italy placed Cassa di Risparmio at the top of the Italian banking industry, second only to Cassa di Risparmio di Provincie Lombarde (also known as Cariplo). In 1891, in accordance with new legislation governing the country's savings and thrift organizations, Cassa di Risparmio di Roma reorganized and adopted new statutes. By then, the bank had emerged as a significant institutional lender and investor, stimulating industrial activity in the region around Rome.

The economic and political turmoil of the post-World War I years proved a boon for the savings bank, which attracted large amounts of deposits due to its reputation as something of a safe haven. The banking policies enacted by the Fascist government also stimulated Cassa di Risparmio di Roma's growth, and in 1934, it began expanding its branch network in Rome. The collapse of Italy's banking system in the 1930s led to a drastic reorganization of the country's banks, with much of the sector nationalized and placed under government control through the newly created Istituto per la Ricostruzione Industriale (IRI). As part of that restructuring, Cassa di Risparmio di Roma took over Monte di Pietà in 1937. Two years later, the savings bank paid ITL 10 million for a share of Istituto Federale di Credito Agrario per l'Italia. That purchase enabled Cassa di Risparmio di Roma to expand into the agricultural credit market, starting with the provinces of Rome and Frosinone, and later extended to Littoria province as well.

In the 1950s, Cassa di Risparmio continued to expand, adding branches in Rome and Lazio, then extending its geographic reach into Centocelle and Colleferro in 1951. The bank received permission to begin offering mortgage and other loans to the real estate and building sector in 1957. Then, in 1960, the bank began offering loans to the public works sector as well.

Through the 1980s, Cassa di Risparmio di Roma expanded its branch network throughout Italy, and established its first overseas offices in Germany and the United Kingdom. The bank also began a series of acquisitions of smaller banks, notably the Banca Generale di Credito in Milan, the Cassa di Risparmio Molisana-Monte Orsini, located in Molise and Campanio, and France's Banque Generale du Commerce. Cassa di Risparmio's acquisition drive culminated with the purchase of majority control of Banco di Santo Spirito in 1989.

Creating an Italian Banking Leader in the 21st Century

Banco di Santo Spirito was founded as Rome's first public deposit bank in 1605 under the auspices of Pope Paul V, a member of the Borghese family. Banco di Santo Spirito was founded in order to raise funding for charitable operation of the Arch-hospital Santo Spirito, which itself dated from 1201. The hospital-owned bank became a major lender to public works projects, such as the Trajan aqueduct project begun in 1608.

Company Perspectives:

Through its actions Capitalia strives to render better, more efficient services and products to its clients and thereby increase the value of the Group companies for its shareholders.

In the early 19th century, Banco di Santo Spirito faced competition from a new generation of banks that began offering interest on savings deposits. Banco di Santo Spirito's charter barred it from paying interest, however. Instead, the bank entered a new area of operation, that of real estate lending, founding the Credito Fondiario in 1873. The bank rode Rome's building boom into the 1890s. Yet when that market slumped, Credito Fondiario was separated from Banco di Santo Spirito, and entered liquidation procedures, completed in 1932. By then, Banco di Santo Spirito had itself undergone a liquidation process before being restructured as a joint-stock company in 1924. The new bank then began building its own branch network in Rome, focusing on the surrounding areas, and also in Lazio, Orvieto, and Assisi.

After its acquisition by Cassa di Risparmio di Roma, Banco di Santo Spirito became the group's primary banking vehicle, taking over the banking operations of its parent, which then changed its status to that of a foundation, Ente Cassa di Risparmio di Roma, in 1991. The new foundation controlled Banco di Santo Spirito at 87 percent, with the remainder held by the Italian government through IRI. The following year, Banco di Santo Spirito took over another IRI holding, Banca di Roma.

That bank had been founded in 1880 as a deposit bank for the Vatican and other religious groups, wealthy and middle class Romans, members of the city's aristocracy and others who had formally held their savings at the French bank Union Générale. Banca di Roma quickly emerged as a major industrial investor, and enjoyed particular success through investments in Rome's fast-growing real estate market. At the dawn of the 20th century, after listing its stock on the Paris and Alexandrian stock exchanges, Banca di Roma began expanding throughout Italy, with branches in the Piedmont, Liguria, Tuscany, and other regions. The Italian government also encouraged Banca di Roma to expand internationally, including an initial branch in Alexandria. In 1907, the bank opened branches in Tripoli and Bengasi, which were followed by offices in Cairo, Barcelona, and other cities in 1909, and a branch in Constantinople in 1911.

During World War I, Banca di Roma expanded through the acquisition of shares in Italy's industrial groups. The bank also played a role in the peaceful expansion of the Fascist empire. In Italy, the bank's branch network grew to more than 150 by 1920. These were complemented by foreign branches in Turkey, Palestine, and Syria, among other countries, reaching a total of 43 overseas branches in 1920.

Over the next decade, Banca di Roma suffered through a series of crises, both within the Italian banking sector and throughout the world. By the mid-1930s, the collapse of the Italian banking industry brought it under government control, with the establishment of the IRI. Banca di Roma was then reformed as one of the country's three "banks of national interest," alongside Banca Commercial Italiana and Credito Italiano.

Following World War II, Banca di Roma contributed to the 1946 formation of Mediobanca, which grew into Italy's major investment fund. Banca di Roma also entered the financing market for the agricultural and building sectors in the 1950s, and began a steady international expansion throughout the 1960s and 1970s. Yet by the end of the 1980s, Banca di Roma, like Banco di Santo Spirito, had long been struggling with a heavy nonperforming loan portfolio, in large part because of government interference.

The merger between Banca di Roma and Banco di Santo Spirito in 1992, which created Banca di Roma, also created the country's second largest bank in terms of total assets, and its largest bank in terms of its branch network. Yet Banca di Roma remained highly unprofitable throughout much of the decade. In an effort to shore up its losses, the bank began selling off a number of its industrial investments at the middle of the decade. Then, in 1997, the bank underwent a privatization effort. The public offering sparked a great deal of controversy, however, in part because the bank targeted the country's small shareholders—and was accused of failing to reveal important information regarding its finances in its prospectus.

Nonetheless, the public offering went through in 1997. Two years later, the bank, which continued to enjoy the protection of the Bank of Italy to help it ward off potential takeover attempts, joined the consolidation of the Italian banking industry. In 1999, Banca di Roma acquired Sicily's Banco di Sicilia. That acquisition was followed in 2002 by the merger with northern bank Bipop-Carire. Yet the acquisitions of these two struggling banks were criticized as Banca di Roma itself attempted to restructure its way to health.

Key Dates:

1539:: Monte di Pietà di Roma is founded.
1605:: Banco di Santo Spirito is founded.
1836:: Cassa di Risparmio di Roma is founded.
1880:: Banca di Roma is founded.
1937:: Cassa di Risparmio di Roma acquires Monte di Pietà di Roma; Banca di Roma becomes the bank of national interest under Istituto per la Ricostruzione Industriale (IRI).
1946:: Banca di Roma participates in the founding of Mediobanca.
1989:: Cassa di Risparmio di Roma acquires Banco di Santo Spirito.
1992:: The merger of Banco di Santo Spirito and Banca di Roma forms Banca di Roma.
1997:: Banca di Roma is privatized in a public offering.
1999:: Banca di Sicilia is acquired.
2002:: The company acquires Bipop-Carire and changes its name to Capitalia.
2003:: A joint venture is formed with Archon Group to collect on EUR 6 billion in nonperforming loans.

That effort was led by new CEO Matteo Arpe, then just 39 years old, who joined the bank in 2001. Arpe launched the bank on the formulation of a new business plan, expected to be completed in 2005. Part of the bank's new strategy called for a drastic reduction in its nonperforming loan portfolio. In 2003, the bank took a strong step in that direction when it transferred some EUR 6 billion in bad loans to a joint venture with Archon Group, set up as a collection agency of sorts. Banca di Roma, now Italy's fourth largest bank, hoped that the 2000s would represent a new beginning to the nearly 500-year-old institution.

Principal Subsidiaries

Bafico S.A. (France); Banca di Roma International S.A.; Banca di Roma S.p.A.; Banco di Sicilia S.p.A; Banque Bipop S.A. (France); Bipop-Carire S.p.A.; Bipop Espana Holding S.A. (Spain); Bipop Finance Limited (Ireland); Corit - Concessionaria Riscossione Tributi S.p.A.; Entasi S.R.L.; Entrium Direct Bankers AG (Germany); Eurofinance 2000 S.R.L.; European Trust Società Fiduciaria Per Azioni; Figeroma - Fiduciaria E Di Gestione Roma - Sim S.p.A.; Fineco Asset S.R.L.; Romafides - Fiduciaria E Servizi S.p.A.; Serit S.p.A.; Società Amministrazione Immobili S.A.Im. S.p.A.; Spaget S.p.A.; Trevi Finance S.p.A.

Principal Competitors

Banca Intesa S.p.A.; Sanpaolo IMI S.p.A.; Unicreditor Italiano S.p.A.; Banca d'Italia; Banca Monte Parma S.p.A.; Banca Nazionale del Lavoro S.p.A.; Banca di Roma S.p.A.; Banco Popolare di Verona e Novara.