FABI International & Project Dept. October 2006 Communicate Project 1 The transformation of the...

FABI International & Project Dept. October 2006 Communicate Project

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The transformation of the The transformation of the Italian banking systemItalian banking system

The current structure of the Italian banking system is the result of a transformation process started in the beginning of the nineties.


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The transformation of the Italian The transformation of the Italian banking systembanking system

Some legislative hints

Privatizations

How the panorama of the credit sector has changed

The trade unions’ role in the changes of the Italian banking system

The income support fund


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The transformation of the Italian The transformation of the Italian banking systembanking system

Second phase: the protocol of June 16th, 2004, and the renewals of the NA

The National Agreement dated February 12th, 2005

The scenario on the verge of the renewal of the NA in 2006


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Some legislative hintsSome legislative hints With coming into force of the

single text on bank and credit laws (Decree 353/93), the regulative outline reaches some kind of organization: after a long phase of regulation making the Italian banking system needed some ordering, it was particularly important to make clearly emerge the principals and aims the lawmakers had set themselves during all these years.

It is a text, amended with its acknowledgement by the EUROSIM Directive on investment services in 1996, that is composed of a coordinated series of regulations aimed at giving the sector a new structure and a new discipline, in accordance with the evolution of the operational reality and the provisions of the European Directives


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Some legislative hintsSome legislative hints

The bank can chose the institutional model they consider more appropriate for the development of their activity. The choice between banking group, full-service bank or any other combination is therefore an institutional choice by the economic subject;

The activity of supervision carried out by the authorities is inspired by the principal of prudential surveillance;

Any form of institutional, temporary and operational specialization drops in view of the potential universality of the financial brokers;

The juridical forms of exertion of the bank activity have been standardized to the joint-stock company, exception made only of the co-operative banks.


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PrivatizationsPrivatizations

A first series of transformations is referable to the privatizations. The foundations of this process had been laid by the Amato Law (Law 218/1990).

Subsequently, the law 359/92 provided for the transformation of the state-owned credit institutes into the juridical form of a joint-stock company.

To understand the importance of privatizations in the credit sector just consider that in 1992 the share owned by the State and the Institutions almost reached 75%.


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The actual start of the privatization process was the divestment of the shares that the Treasury held of Credito Italiano (80.5%) in 1993 and of Banca Commerciale Italiana (51.9%) in 1994.

In 1995, the public share in Italian banks had fallen to 62% of the total amount, still high in comparison with the other European countries, e.g. France (36%) and Germany (52%).

During the ensuing years, a further wave of privatization reduced the share quickly to 10% in 1999

PrivatizationsPrivatizations


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How the panorama of the credit How the panorama of the credit sector has changedsector has changed

Between 1993 and 2002, in Italy there have been realized a good 500 mergers that have involved nearly half the banking sector.

The result of this process has been a significant reduction of the number of banks operating in Italy.

The system has reorganized above all in the form of the banking groups.


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UNICREDITO ITALIANO BANCA INTESA SANPAOLO IMI CAPITALIA BNL Monte Paschi Siena MPS



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The situation today 09/2006

UNICREDIT GROUPJuly 2005 take over of HVB (D) and

BA-CA (A) 148.000 employees in 24 countries, in Italy 38.000 employees

6th Banking Group in Europe


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The trade unions’ role in the changes The trade unions’ role in the changes of the Italian banking systemof the Italian banking system

in the mid nineties, the Italian banking system underwent a moment of crisis due to profitability problems of some South Italian banks (Banco di Napoli, Sicilcassa, Banco di Sicilia), but also because of many undersized banks.


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The Government, worried about the possible insolvency of some major banks, and in view of the integration of the European markets, intervened with the Italian Bank Association and the trade unions, promoting the stipulation of a trilateral agreement in 1997. As agreed upon, ABI and the trade unions signed an applicatory protocol on December 22nd,

1998



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At the same time, a joint solidarity fund to finance reorganization and early retirement, that were expected to affect 10% of the workers, i.e. approximately 30,000 people, was constituted



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On July 11th, 1999, the new national agreement was signed, including the union procedures for the settlement of the occupational spin-offs deriving from mergers or reorganization, involving for the first time the group leader bank, that committed themselves to negotiate with the trade unions and to make themselves responsible of or – if possible – reinstate the redundant workers in another company of the group.



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In addition, supplementary measures have been taken, including the reduction of the weight of the variable wages and the minimum rises for the fixed ones, to reduce the labour cost, in exchange for the preservation of the employment level.



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To reduce the expenses and permit the banks to finance the solidarity fund, that must manage without any subsidy by the state or the other public bodies, the workers also renounced for the rises of the entire biennium 1997-1998.



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The scope of these drastic measures was to reduce the ratio between the labour cost and the margin of intermediation of the system from 43% to 39% during the four years life of the agreement.



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At present (2004) the labour cost/intermediation margin ratio has fallen from 43% in 1997 to approximately 35%, thus the initial aim of containing the expenses has been attained.



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Now we are entering the second phase that has started with the new protocol in 2004 and has set a new objective, i.e. to make the Italian banks competitive in the European banking system, reducing the above ratio to the European average of 32-33%.



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The income support fundThe income support fund

In April 2000, the Government issued the institutional decree of the solidarity fund, called also income support fund, providing in its ordinary part the financing of the training courses and the one-year re-conversion for redundant workers for the reinstatement in other sectors or companies with the national agreement of the credit sector


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And in its extraordinary part an early retirement plan up to five years before the maturity of the pension requirements. The ordinary part provides a paritetical contribution between the companies and the workers of the system, whereas the costs of early retirement are entirely charged to the company that resorts to it.



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The early retired worker receives an allowance equal to 70% of the last salary, 100% of it is paid, however, into compulsory social security in order to guarantee the worker a pension without great detriments.



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During the period from 2000 to 2005, some 20,600 out of 339,000 workers of the system have profited by the fund.

In addition to the fund, the companies have adopted other systems of early retirement: the most important have been those stipulated in 1997-1998 in Banco di Napoli, Banco di Sicilia/Sicilcassa and BNL, before the fund came into force.



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The fund is only accessible through negotiation and thus a union agreement of the parties: company/trade union.

The funds life was expected to be 10 years to start from July 2000 and will therefore expiry on June 30th, 2010.



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The further industrial reorganization together with the reform of the Italian pension system (that has raised the pension age from 37 to 40 years of contribution) have led to the Agreement of May 25th, 2005, that has ratified the extension of the life of the solidarity fund of the sector until June 30th, 2020.



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Second phase: the protocol of June 16th, Second phase: the protocol of June 16th, 2004, and the renewals of the NA2004, and the renewals of the NA

The economy made by the 1999 NA (the biennium 1997-98 without rises, the flexibility of the working hours in order to avoid overtime work, the limitation of the reimbursements of travel expenses, the containment of seniority pay) have permitted a great reduction of the fixed operating expenses


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That has been used in part to increase the variable wages through two channels: the Corporate Production Bonus negotiated in the company or in the groups with the trade unions, and the Merit Rating System (Sistema Incentivante Individuale), applied with great discretion by the companies, without any negotiation with the trade union.


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The spreading of these merit rating systems has in fact been carried to excess in some cases.

The lack of clear sales targets and the dialogue with the trade unions and not least training, that some companies, even of substantial importance, have neglected in their haste to reach the levels of competitiveness in the market, have caused a negligence of the consultation of the customer on the placing of the new products, violating legal provisions in some cases.


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The Argentine bond scandal, the Parmalat and Cirio financial cracks, whose obligations had been widespread among the savers without informing them of the risk they were incurring, and sales strategies and commissions emerged during the last scandal involving the former management of Banca Popolare Italiana, have made the ethical problem of the banks even more urgent.


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The recent “Savings Law” has largely allowed the system to overcome the absence of control.

All these reasons have made it necessary to replace the old 1998 protocol by a new Protocol on Corporate Social Responsibility (CSR). The new protocol has been stipulated by the Italian Bank Association and the trade unions on June 16th, 2004


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confirms the central role of human resources in the strategies of the system’s development;

approves the contribution to the system’s stabilization made by the social parties, confirming however the trend towards expense control;


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reaffirms the will to direct the banks’ evolution, in a context that remains competitive, towards a socially sustainable and compatible development;

commits to improve constantly the quality of the relations between the companies and the workers through a new phase of union relations and the increase of quality of the services destined for the customers;


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confirms the will to intensify training, above all of the personnel working in the internet, who must be given information and clear rules regarding the activity of selling products to the customers;


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extends the liabilities of information in favour of the trade unions: on the merit rating systems for the employees that should include targets regarding as much the quality as the quantities, providing also a phase of debate in case of disagreement;


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provides the constitution of a national paritetical surveillance body that is to analyze the system on the basis of the aforementioned, with a particular eye to what has been written down in the Green Paper of the European Commission in July 2001, and to the results of the project on social responsibility under examination by the European Bank Federation - Uni Europa Finance – European Co-operative Bank Federation – European Savings Bank Federation.


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The National Agreement dated The National Agreement dated February 12th, 2005February 12th, 2005

The National Agreement, that has been renewed on February 12th, 2005, has been amended by a couple of changes vis-à-vis the modality of agreement and information as regards the impacts of mergers and reorganizations on the workers, that provide vaster terms, considering the experience of the first two years.


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It provides the liability of the banks to inform the trade unions in case of elaboration or changes of the industrial plans or the operating policies, even if these do not have immediate consequences for the workers.


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A chapter called Social Health and Safety Policies that groups all the social security and safety rules for the workers of the sector has been added.

The chapter relating to the merit rating systems has stipulated the rules concerning the quality indicators and the new union relations, on this topic, based on the constructive exchange of views of the parties instead of mere information. .


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The scenario on the verge of the The scenario on the verge of the renewal of the NA in 2006renewal of the NA in 2006

We are expecting to enter a new phase of union relations, with international character, and a reassessment and multiplication of the EWC and the representations of the banking groups compared with those of the single companies.


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In view of the internationalization of the productive processes, it will be necessary to reorganize training and the professional careers of the workers and to reassess the occupational guarantees


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In 2005, Italy has seen an inedited interest by the European banking groups (the takeover bid by Banco Bilbao for BNL, Abn-Amro/AntonVeneta and BNP Paribas/BNL) in the assets of the Italian banks.


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Regaining competitiveness is surely positive for the system, otherwise we would not have renewed positively neither the NA of July 11th, 1999, nor that of February 12th, 2005.


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What people are likely to conceal behind the pretext of market power, is that results of this importance have been consciously pursued and realized by the sector agreements of co-ordination stipulated by the trade unions on the one hand and the Italian Bank Association and Federcasse on the other hand, in the second half of the nineties


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Today’s banking system is still insufficient with respect to social questions!


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The strategic repositioning of the banking system has promoted, unilaterally, the shareholders of the credit institutes marginalizing the interests of the other parties involved, from the workers to the customers and the local economies.


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For the same reasons, we reckon that the process has not yet finished and that the banking system must pursue a perspective of a socially and environmentally sustainable and compatible development that calls inevitably for the governance of the companies, or more precisely the presence of the workers in the managing and supervisory boards.


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The criteria of distribution of the proceeds with the correction of the unbalanced distribution to the advantage of the shareholders and the beneficiaries of stock options, the temporary horizons, with the medium-long term projection of the economic balance, should free the banks from the distorted obsessions of the short term both from the point of view of the quality of the human resources and that of the relations with the customers.


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It is these principles and objectives that will allow us to measure if the trade unions and the Italian Bank Association have or have not started the course towards social responsibility they committed to.

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