A complex procedure for the privatization of the public banking system in Italy is under way and has brought about the establishment of the so called "Banking Foundation", which is composed of a foundation and of a bank.
The purpose of this Foundation is to assure the placement of state owned bank shares on the stock market in order to privatize, at least partially, the state owned banks, by temporarily controlling the totality of their shares.
The Banking Foundation is structured in such a way that permits it to achieve its purpose. The Foundation is the owner of the bank and the bank in turn has a purely instrumental role in attaining the aims and social programs of the Foundation characterised as non profit.
Specifically, the structure is formed from two distinct subjects that in certain respects serve two distinct purposes:
(i) the bank which functions as a company, carries out profit oriented bank activity, must effectively engage in the solicitation of the public savings, and manages credit and banking loan services;
(ii) the foundation which functions as a non profit entity is provided with significant capital and directs the resources obtained from the management of the bank exclusively for social aims.
The Banking Foundation, which enjoys a first level position in the world of Italian non profit organisations, gives rise to a lively debate among scholars and numerous legislative intervention, and involves numerous problematic issues in the fields of banking, non-profit and of privatization.
In the desire to resolve these issues, there has been a rapid evolution in distinct phases, of the rules and guidelines governing banking foundations which has culminated in the directive of November 18, 1994, issued by the Ministry of the Treasury. Although the directive is not the exclusive source of the law regarding banking foundations, it is the latest directive which governs their structure and their duties.
The directive takes into consideration the principles of the disinvestment of a quota of bank holdings as well as the principle of diversified utilisation of the revenues. These two principles satisfy both the need of the bank to have a diversified portfolio, as well as the need of the Foundation to have more sources able to produce the income that services its institutional activity.
The directive, in light of these principles, defines a series of objectives that banking foundations must attain.
In fact this directive attempts to achieve the conditions for a greater separation between foundations and the controlled banks.
This separation is manifested by provisions that provide for the separation of decision bodies, i.e. the Board of Directors of the foundation and of the bank must be different. Also the shares that both the bank and the foundation controls must be different.
The directive also provides for the economic stability of the foundation. In fact the foundation must use the banks revenue but not the banks capital for the foundation's normal institutional activities and furthermore it cannot finance over 50% of the foundation's activity with these revenues.
In addition, the directive indicates general criteria for revenue uses in accordance with the principle of risk diversification. There are no compulsory provisions binding the foundation, however there are fiscally motivating provisions to encourage the adherence to these provisions.
Specifically, Article 2 of the directive states that the foundations that engage in the transfer of the bank shares must disclose the procedure and time of the share transfer in order to assure the diversification of the capital of the foundation. This share transfer must occur within five years from the promulgation of this directive, and the share transfer must be at least 50% of the banks holdings.
To assure the adherence to these provisions, a fiscal incentive is offered as a tax exemption on the capital gain derived from the transfer of shares, conditioned on the fact that the transfers are effectuated within the period of five years and that the transfers must bring about the reduction of the holdings under 50%.
If the bank shares are transferred within the five year period as provided under Article 2, then the foundation will not only enjoy a fiscal exemption for the five year period but also for any bank share transfer thereafter.
The procedure for the transfer of the bank shares is governed by article 7 which establishes that the transfer must occur through the public offer of sale or alternatively, through direct dealing.
The latter alternative is possible only with the express authorisation of the Ministry of the Treasury on condition that the share transfer occurs among banks or companies belonging to banking groups, financial companies, or insurance companies.
If the share transfer is done with the purpose to create a stable group of shareholders this transfer can be carried out by direct dealing, with the express authorisation of the Ministry of the Treasury and the shareholders participating in this operation must communicate to the Ministry of the Treasury their shareholder Agreement. The transfer resolutions must be presented to the Ministry of the Treasury and simultaneously sent to the Bank of Italy.
Within thirty days from receipt of the transfer resolutions the Ministry of the Treasury in the form of a decree declares the resolution of the share transfer of a sole lot to be conforming.
In the case where the lot of shares is divided for the purpose of more than one transfer, then this plan and each resolution on the execution of transfer, must be sent to the Ministry of Treasury for the certification of conformity.
This article was intended to provide general guidelines. Specialist advice should be sought about specific facts.