Italy Repeals 15% Cap on Bank Equity Ownership by Non-Financial Companies

Effective November 29, 2008, the Italian Government repealed, through a law decree, a provision of the Italian Banking Act (Article 19, paragraphs 6 and 7, of Legislative Decree No. 385 of September 1, 1993) to the effect that participations in the share capital of Italian banks or bank holding companies by persons with significant operations in the non-financial sector could not exceed 15 percent of the voting share capital of the bank and, in any event, could not be controlling interests. Under the same repealed provision, the Bank of Italy would deny the authorization to acquire a significant interest (equal to or exceeding 5 per cent of a bank’s voting share capital) to applicants operating in the non-financial sector, where: (i) contractual arrangements confer on the applicants a significant concentration of power for the appointment or removal of the majority of the directors or the members of the supervisory board of a bank and (ii) such power could be detrimental to the sound and prudent management of the bank.

The Government’s law decree (No. 185 of November 28, 2008 - “Decree 185”) will become void unless ratified by Parliament within 60 days of its publication.

Pursuant to Article 14, paragraph 1 of Decree 185, the Bank of Italy may now authorize persons with significant operations in the non-financial sector to acquire a significant interest (or control) in a bank, provided that (i) they meet the requirements applicable to all significant shareholders of Italian banks, set forth by Article 19 of the Italian Banking Act (namely, certain integrity requirements and the ability to guarantee the sound and prudent management of the bank), and (ii) they meet general experience requirements in the management of equity participations or, where the size of the interest to be acquired could enable the applicant to influence the management of the bank, they have specific experience in the financial sector.

Through this measure, the Italian government implemented Article 5(3), of EU Directive 2007/44/EC on the procedural rules and evaluation criteria for the prudential assessment of acquisitions of and increases in bank holdings. The repealed provision contained a cornerstone principle of Italian banking law, the so-called “separation limit” between the banking and industrial sectors, which was intended to shield banks from potential conflict of interest and excessive exposure to investments in companies not subject to prudential regulation. These amendments will bring Italian legislation in line with the legislation of the other EU Member States, which generally does not mandate an a priori ownership separation between banks and industrial companies. EU and Italian supervisory regulations address the conflict of interest and risk containment issues that the separation limit was meant to avoid, through, among other things, prudential limits on large exposures to clients, specific limits to exposures to clients connected or related to the bank, as well as internal approval procedures and controls applicable to transactions with customers connected or related to the bank.

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Please do not hesitate to contact Giuseppe Scassellati-Sforzolini in the firm’s Rome office or Valentina Zadra in the firm’s Milan office with any questions concerning the above.