Mediobanca, under pressure to improve returns for shareholders, plans to sell almost all of its stakes in major companies, ending half a century of influence at the heart of Italian business to focus on banking.
The bank's Chief Executive Alberto Nagel said on Friday Mediobanca aimed to cut 2 billion euros ($2.6 billion) of equity holdings through sales and write downs to concentrate on its core banking operations, a move that will push the bank in the red this year.
"Our business model is considered too complex, investors have difficulties in understanding how much it is worth. This is also due to our big exposure to equity holdings," Nagel, unveiling the firm's 2014-2016 business plan, told analysts and investors.
Mediobanca, founded in post-war Italy by legendary banker Enrico Cuccia, sits at the centre of a web of corporate holdings, the product of a strategy focused on influence over Italy's corporate landscape rather than profit.
But Italy's economic crisis and the introduction of new bank capital bank rules that make it costly to hold unprofitable investments have pushed Mediobanca to relinquish control.
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Nagel said Mediobanca would reduce by 3 percent its 13.2 percent stake in Italy's largest insurer Generali, which is in the middle of an aggressive turnaround plan, but get ready to sell all other strategic holdings.
The Milan-based bank plans immediately to book write downs of 400 million euros to reflect the market value of major holdings and pave the way for their sale. This will result in a loss of about 200 million euros for the financial year ending June 30.
Besides its core investment banking business, Mediobanca wants to increase the weight of its retail bank, a source of much-needed liquidity, and its lucrative corporate finance arm.
It also launched a new alternative asset management platform on Friday and said it would increase its foreign presence.
The bank is aiming for a return on equity of 10-11 percent by 2016, a core Tier 1 ratio, a measures of financial strength, of 11-12 percent and a dividend payout at 40 percent of earnings.
Mediobanca shares were down 1.7 percent at 09:52 GMT against 0.3 percent rise in the European banking index as traders deemed some of the bank's targets too ambitious.
VALUE OVER INFLUENCE
Mediobanca played an important role in helping Italy to develop an independent corporate sector after World War II.
But over time, the bank's name became linked with Italy's boardroom elites and opaque deal making carried out in its 'salotto buono', a closed boardroom circle which local businessmen strived to be part of. The'weight', or influence, of an investment rather than its financial value was the guiding star of Cuccia and his immediate successors.
"The existence of the 'salotto buono' has generated a control structure that has not helped the development of these companies,"said Roberto Lottici, fund manager at Ifigest.
"In principle, Mediobanca's change of strategy is to be welcomed even if, at this point in time, it may render some of these companies vulnerable."
Among others, Mediobanca owns Generali, leading domestic publisher RCS Mediagroup, owner of influential newspaper Corriere dellaSera, and corporate holding Telco, the top investor in domestic phone giant Telecom Italia.
Mediobanca has never recouped its initial investment in Telco, currently trading near historic lows, while debt-laden RCS is in the middle of a rights issue.
A source with direct knowledge of the strategic thinking at the bank said Mediobanca plans to exit shareholders' pacts at Telco and RCS as the earliest opportunity in September.