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An Italian Bank Star Implodes


Where did $20 billion in market value go? That's the question angry shareholders want executives at Italy's Bipop-Carire to answer, pronto. Only 18 months ago, it was hailed as one of Europe's most innovative financial institutions. The product of a 1999 merger of two provincial banks, Bipop-Carire morphed into a New Economy bank later that year when it launched what became Italy's leading online brokerage. Last year, it spent more than $2.5 billion to buy five European financial-services companies, including Germany's Entrium Direct Bankers, which had some 803,000 phone and online customers. Only the 16th Italian bank in assets, Bipop's market capitalization hit $23 billion in March, 2000--more than double that of industrial blue-chip Fiat and surpassing most of the country's largest banks. Today, the company is worth $3.6 billion.

No question, the bank was inflated by the dot-com bubble. But it had real assets, a distribution network, a viable e-commerce strategy, and a 24.8% return on equity in 2000. The real shock came Oct. 15. On that day, Brescia-based Bipop announced that it would take a $114 million provision in the third-quarter, and it ousted former Chief Executive Bruno Sonzogni from the board.

Bipop's problems go deeper than the dot-com rout. The stock's stupendous rise masked lax management, hyperaggressive lending, and huge trading losses. Profits, already down 70% in the first half of 2001, are expected to sink 78% for the full year to $66 million, analysts predict. But what upset shareholders most were allegations that bank officials cut a backroom deal with 250 favored customers guaranteeing them a minimum 4% return on a variety of investments. Elio Lannutti, president of Adusbef, the Italian consumer association, also claims to have documents showing that the bank offered some customers favorable loan terms if they bought Bipop shares. Adusbef has filed a lawsuit alleging stock-rigging.

"COWBOY FASHION." Now, The Bank of Italy, the Italian stock market regulator Consob, and the prosecutor's office in Brescia are investigating. Analysts say Bipop's superheated growth should have aroused their curiosity sooner. "The bank was clearly operating in cowboy fashion," says Vasco Moreno, a bank analyst at Fox-Pitt, Kelton in London. Bipop-Carire board members claim they knew nothing about the guarantees or other irregular practices. On Oct. 19, Maurizio Cozzolini, Bipop-Carire's new chief executive, said the guarantees may not be legal, and if they are, the bank may not honor them.

Cozzolini, 42, has been trying to restore the bank's luster. He presented a restructuring plan that includes the sale of the mutual-fund unit, Azimut. Negotiations are under way with London-based private equity fund Apax Partners, and General Electric Capital Services Inc. is interested, too. Bipop's main shareholders also want a major investor.

FUND FLIGHT. But the timing is terrible: Spooked Italians are fleeing mutual funds. So Azimut, which Bipop-Carire put on the market six months ago, is expected to fetch between $300 million and $450 million, less than half its value when it first went on the block. Credit Suisse First Boston forecasts that Bipop-Carire's total income will fall 16% this year, to $937 million. Net outflows from Bipop's funds for the first nine months of 2001 totaled $1.5 billion.

Don't count Bipop-Carire out just yet, though. It has more than 1 million online banking and brokerage customers across Europe and 600-odd branches. Sales of insurance products and a rise in customer deposits have helped offset the outflow from Bipop funds.

A key issue is whether Cozzolini, who was Sonzogni's No. 2, can win shareholders' trust. "We are positive on Bipop's business model for the future, but the management has lost credibility," says one London-based analyst. Cozzolini, who declined to comment, seems to be trying. Last week, he unveiled a tough corporate governance code. He's now looking for a major investor. If Bipop-Carire cleans up its act, it may live up to its promise yet. By Gail Edmondson in Rome


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