Italy's banking sector offers both growth and defensive stock opportunities, according to Raj Shant,...
Italy's banking sector offers both growth and defensive stock opportunities, according to Raj Shant, director of European equities at Credit Suisse Asset Management.
Stocks such as Medio Lanum, Banco Fideuram and Bipop, which have capitalised on this trend have seen growth of 72%, 111% and 59% in euro terms respectively in the 12 months to 12 December.
Shant says: "The reason we like them now is they are less exposed to international funds and are a defensive play as the world begins to worry about the effects of economic slowdown on the markets."
However, while Adriaan de Mol van Otterloo, European fund manager at Schroders, is bullish on Italy, he says its banking sector is very fragmented.
He says: "If you look at the figures of banks per inhabitant, Italy has one of the lowest ratios in Europe and needs to address capacity."
Van Otterloo says part of the reason for the non-changing status of Italian banks is the co-operative manner in which they are run. Many banks in Italy still have a directorial structure based on a combination of municipality, local members of parliament and shareholders.
He says: "These banks are listed on the stock exchange but "external" shareholders do not always have the power of the vote. Even if you own 5% of the company, the votes are structured in such a way that there is one vote per member rather than proportionate voting."
Van Otterloo says that the problem in Italy, as with much of Europe, is that there is still a high degree of cross-ownership of shares which is not necessarily strategic but rooted in group interests. Potential prime minister re-elect, Silvio Berlusconi, has a number of interests in Italian companies.
Van Otterloo says: "Berlusconi basically has control over the Italian media and it will be interesting to see what he does with all his holdings if he is elected to power.
"There has to be some separation between his political and media interests."
The Italian financial and industrial landscapes are characterised by several such arrangements, according to Van Otterloo, though he is very impressed with internet-based bank, Bipop.
He says: "Bipop is a great company with great management that does not care about the traditional methods of doing business in Italy.
"The company works to a new entrant model, trading on its ability to provide value added services and tapping into new trends such as the increasing demand for asset management."
Domestic expansion by Italian banks is largely hampered by one man, he says. Antonio Fazio is governor of the Bank of Italy and has made up his mind he does not want to see rapid consolidation, according to Van Otterloo. In addition, foreign operations are not allowed to take over Italian banks.
Van Otterloo says Italy's market looks healthy in general but he is concerned about the heavy 25% weighting of the telecom sector. Banks also account for around 25% while utilities and energy make up about 18% and insurance 14%.
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