In 1991, the Italian banking industry performed better than had been expected, showing growth despite an economic recession.

Italy's big banks increased deposits by an average of 10% to 11%, and net profits -- with a few exceptions -- by 3%.

Banco di Napoli showed the larges gain in deposits, 13.1%, while Cassa id Risparmio delle Province Lombarde, or Cariplo, had the best net profit increase, 6.5%, followed by Banco di Santo Spirito at 3.9%.

"Generally, Italian banks are doing better than what they themselves like to admit," said one banking source. "The much-feared increase in competition amongst banking institutions has largely proved just how loyal clients are in Italy," the source added.

Italy's Largest Commercial Bank

Istituto Bancario San Paolo di Torino, Italy's largest commercial bank with about $116 billion in assets, reported an 8.9% drop in net profit for 1991 to about $454 million from $500 million a year earlier. Gross operating profit rose to $1.23 billion from the lire equivalent of $1.22 billion in 1990.

With deposits up 13% in the first quarter of this year, San Paolo predicts a better performance in 1992 both in terms of operating profit and income.

Furthermore, the banking group has just completed a successfully orchestrated restructuring. Beginning with the bank's conversion into a joint stock company -- or S.p.A. -- last year, the group was reorganized into a three-tiered structure as of Jan. 1.

Three-Tiered Structure

Compagnia di San Paolo is at the top, controlling San Paolo Bank Holding S.p.A. The holding company, in turn, controls the group's banks:

* Istituto San Paolo di Torino S.p.A.

* The long-term-credit institution Crediop.

* Insurance and financial services interests.

* Minority shareholdings in Hambros PLC and Salomon Inc.

The bank's restructuring was completed with its partial privatization through a public share offering in March and subsequent listing on the Milan, Turin, and London (SEAQ) stock exchanges, "placing San Paolo on a trampoline for growth," according one Milan analyst.

Multifaceted Restructuring

Banco di Roma, the new bank holding formed by the merger of the three Rome-based public-sector banks -- Banco di Roma, Banco di Santo Spirito, and Cassa di Risparmio di Roma -- is also expected to show marked gains through its multifaceted restructuring plan, which should be finalized by the end of 1993.

"Paradoxically, becoming bigger also means becoming slimmer," said Cesare Geronzi, previously director genreal of Banco di Santo Spirito and now director general of the new Banco di Roma group.

Mr. Geronzi explained that the merger "has given impulse to streamline operations where there is duplication and find solutions to effectively use an excess of personnel. We must reduce costs and increase productivity," he said.

The new banking group, which becomes operative Aug. 1, will have total assets of about $116 billion and $8.25 billion capital, while gross income for 1991 is $618 million.

Banco di Roma is now considered Italy's largest banking group with 1,100 branches throughout Italy and 204 in Rome alone.

Other banks showing this positive trend in the Italian banking sector:

Consolidations in Progress

At Cariplo, 1991 net profit increased 6.5% to about $244 million from $229 million the year earlier, while gross operating profit rose to about $1.4 billion, up from $1.33 billion in 1990.

General director Sandro Molinari said that "despite this difficult moment for the Italian economy, results for 1992 should be in line, and not inferior to, last year."

Cariplo is at the center of another consolidation scheme within the Italian banking sector involving] the investment banking and financial services firm Istituto Mobiliare Italiano and the savings bank institution ICCRI.

In March, Cariplo signed a letter of intent to buy a 21% stake in IMI, boosting its stake to 27.6% and becoming IMI's second-largest shareholder.

It is now emerging that ICCRI may participate in the operation as well through an exchange of share capital with IMI that has yet to be worked out.

In reference to the IMI acquisition, Mr. Molinari said that it would be "the union of two solid groups, both leaders in their sector, and would form a more complete banking group able to operate as a short-, medium-, and long-term credit institute."

Mr. Molinari said that some of the two groups' activities would be integrated, but that a merger is not planned. Together, Cariplo and IMI would have assets of more than $116 billion, a banking source said.

Recovering from Setbacks

Banca Nazionale del Lavoro said net profits increased 3.1% in 1991 to about $61 million from $59 million the year earlier. Gross profit jumped 23% to about $1 billion in 1991, up from $809 million in 1990.

The positive results for Banca Nazionale del Lavoro came despite several setbacks over the past year. Included was a $1.6 billion exposure to Iraq due to irregular loans issued by BNL's Atlanta branch and the bankruptcy of a large creditor in Italy, the agriculture consortium Federconsorzi.

Stung by Higher Taxes

The two state-owned commercial banks, Banco Comercialle Italiana and Credito Italiano, both said they were stung by higher tax charges, but still showed gains in gross operating profit.

BCI reported a 24% drop in net profit for 1991 to $299 million from $394 million the year earlier, while gross operating profit rose 3.2% to $1.15 billion fgrom about $1.11 billion.

BCI's managing director Mario Arcari said that 1992 should be better. "The bank's capital base has been adequate to allow self-generated investments" he said, but added that a capital increase to finance further investments was "desirable" for next year.

Surge in Operating Profits

Pier Carlo Marengo, Creditor's managing director, claims that 1991 was the bank's "best year ever," adding: "We've either been smart or lucky."

He said that the bank's results were extremely positive, both in terms of increased business volumes and profitability. Mr. Marengo also pointed out that there had been no growth of doubtful loans.

Credito said that net profit fell 12% to $245 million from the lire equivalent of $320 million in 1990. However, operating profit surged 18% to $528 million in 1991 from $447 million the year earlier.

Based on indications from the first quarter, Mr. Marengo said that 1992 looks like it will be a very satisfying year for the bank.

Officials at BCI and Credito Italiano confirmed that plans to merge the two Milan-based banks had been definitely dismissed after careful examination.

"The two banks are very similar -- we have a common shareholder [the Italian state holding conglomerate Istituto per la Ricostruzione Industriale] -- and therefore decided to be more synergistic," explained Mr. Marengo. "It's silly to go into excessive competition with anyone, and it's sillier yet in the case of our two banks," he said.

'Economies of Scale'

While Mr. Marengo stressed that the two banks will never coordinate lending or loan conditions, he said that Credito and Banca Commerciale "are coordinating to reach economies of scale, initially with plans to set up joint EDP and accounting systems and a joint staff training center."

Credito Italiano has been seeking to acquire the privately held Banco Nazionale dell'Agricultura in which it already holds a 4.08% stake.

It is understood that Credito Italiano would not seek to fully incorporate BNA, and would leave it as a separate bank. "Close organic cooperation would be good business for both banks," Mr. Marengo said.

'The Year of Our Relaunch'

Carlo Cattaneo, Joint chief executive and head of the foreign department at Banco Popolare di Milano, explained that last year, BPM -- a strong regional savings bank -- underwent a restructuring and rationalization of its operations.

The restructuring, together with a capital increase and sustained expansion in its home base in northern Italy "should bear fruit this year," Mr. Cattaneo said. "This is the year of our relaunch," he added.

In 1991, BPM reported a 6.5% decline in net profits to about $139 million.

"Nineteen-ninety-one was surely an historic year for Banco di Sicilia, with its conversion into a joint stock company," reports the Palermo-based bank's general manager Giacamo Perticone.

While BdS said that 1991 net profit was about $20 million, down from $28.5 million the year earlier and gross profit slid slightly to about $258 million from $278 million in 1990, the first quarter indicates better results for this year.

"There are important signals in the nation's economy, like sports on a leopard, that point to a recovery, and this is very important because our activity follows the trend of the economy," Mr. Perticone said.

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