The Economist - USA (2022-02-26)

The Economist February 26th 2022 Finance & economics 71

Italianbillionairesbattle

Ciao, salotto buono

T

wenty yearsagoMediobancawasthe
epicentre of the salotto buono(the “fine
drawing  room”),  a  group  of  old­fashioned
firms  whose  web  of  cross­connections
dominated  Italian  business.  Times  have
changed. Today the Milanese bank is in the
modernising camp in a fight with two su­
per­seniors over the future of 190­year­old
Generali,  Italy’s  biggest  insurer.  Its  out­
come  could  decide  whether  Italy’s  cor­
porate governance is at last thrust into the
21st century. 
The  power  struggle  pits  Alberto  Nagel,
boss of Mediobanca, against Leonardo Del
Vecchio, the 86­year­old founder of Luxot­
tica, an eyewear giant, and Francesco Gae­
tano  Caltagirone,  a  78­year­old  construc­
tion  tycoon.  Both  sides  own  big  stakes  in
Generali:  Mediobanca  controls  17%,  while
the  pair  together  own  14%.  At  stake  is  the
future direction and governance of one of
Italy’s biggest firms. Mr Nagel thinks Gen­
erali is on the right path under the steward­
ship  of  Philippe  Donnet,  the  group’s

Frenchceowhosemandateisupforre­

newalattheannualgeneralmeeting(agm)

inApril.MessrsDelVecchioandCaltagi­

roneareagitatingforregimechangeatthe

venerableTrieste­basedinsurer.

Exactlywhyisnotclear.Theyhavenot

comeupwitha businessplanoranalter­

nativecandidateforceo. Theyseemun­

happywithGenerali’smergers­and­acqui­

sitionsstrategy,whichtheyconsidertoo

timid.Thefirm’srecenttakeoverofCattol­

ica,a parochialrival,wasnotthekindof

dealtheywanttosee,whichisbigandin­

ternational.TheycomplainthatGenerali

shoulddomoretodigitiseitsoperations.

InfactMrDonnetseemstohavedonea

goodjobatGenerali.Hehasstrengthened

itscapitalpositionthroughthesaleofpe­

ripheralbusinessesandimprovementsin

profitability.Hehaslowereditsdebtbur­

denandchangeditsbusinessmixaway

fromproductsthateatuptoomuchcapi­

tal,suchasguaranteedlife­insurancecon­

tracts,tofee­payingones,suchasproperty

andcasualtypolicies.Inrecentmonthshe

hasledacquisitionsthatincreasedGenera­

li’sshareincoreEuropeanmarkets. And

Generali has pioneered software that

writesinsurancecontractsonitsown.

What’smore, Generali has become a

cashmachinethatmakesinstitutionalin­

vestorshappy,saysAndrewRitchieofAu­

tonomousResearch.WhenMrDonnetpre­

sented his three­year plan in December he

promised cumulative dividends of almost

€6bn  ($6.8bn),  forecast  an  annual  rise  in

earnings  per  share  of  6%  to  8%  and  an­

nounced a €500m buyback. 

So what motivates the dissident duo? A

loss of influence, perhaps. In the old days

of  the  salottothe  ceoof  Generali  would

dine  with  important  shareholders  before

announcing  strategic  decisions  or  new

board members. Those days are gone as the

insurer  continues  to  bring  its  governance

in line with European norms. Under rules

Mr Donnet introduced in 2020, the outgo­

ing  board  last  month  recommended  new

directors for the ten­strong body—as is the

case  at  some  continental  blue­chips.  The

duo dislike the new rules.

On the face of it they scored a victory on

February  18th,  when  Gabriele  Galateri  di

Genola,  Generali’s  chairman,  said  he

would  step  down  at  the  end  of  his  third

termin April. But Mr Galateri did not leave

because  the  duo  pushed  him  out.  He  left

because  he  supports  Mr  Donnet’s  drive  to

modernise Generali: under the new gover­

nance rules, three terms is the maximum.

It  is  likely,  in  fact,  that  Mr  Donnet  will

still  be  in  his  job  after  the  agmon  April

29th.  Analysts  assume  that  Mr  Nagel  and

investors who represent 35% of shares will

prevail.  This  may  upset  the  silver­haired

rebels—but there is a silver lining,too.As

top  shareholders,  they  stand  to pocket

giant dividends in the coming years.n

The retro campaign of two grandees of
Italian business

inated  in  grams  of  gold.Ofthe 86 tonnes’
worth  issued  since2015,about60%were
sold  after  the  pandemicbegan. Andthe
gold  monetisation  scheme,whichallows
households to handgoldovertoa bankand
earn interest, was revampedlastyeartore­
duce limits on the sizeofdeposits.
Lockdowns  inadvertently helped the
state’s  agenda.  ResearchersattheIndian
Institute  of  Management inAhmedabad
found  that  when  shopsshutandsalesof
physical gold groundtoa halt,someIndi­
ans  turned  to  onlinealternatives.Mobile
payments  platforms like PhonePe and
Google Pay reportedrisingappetitefordig­
ital gold, which is soldonlineandstoredby
the seller. Money alsorushedintogoldex­
change­traded  funds(etfs).Theirassets
hit  184bn  rupees  ($2.5bn)inDecember,a
30% rise in a year. 
Still,  only  a  sliverofthepopulation,
mostly well­off urbantypesandmillenni­
als, invest in complexfinancialproducts.A
large  part  of  India’sdemandforphysical
gold  comes  from rural areas, where it
seems  in  no  dangeroflosing itslustre.
Those  in  far­flungvillages don’t always
have a bank accountora smartphone,mak­
ing  it  hard  to  buy  goldonline.Norcould
they  easily  show  offdigital metaltothe
neighbours  or  lendtheirdaughteranetf
to wear on her big day.n

InflationinTurkey

Getting sticky

A

t least bycomparison with last year’s

disaster,  when  it  crashed  by  44%

against  the  dollar,  Turkey’s  lira  has  had  a

good run of late. Since January the curren­

cy has lost only 4% of its dollar value. Part

of the reason is a scheme to protect lira de­

posits against swings in the exchange rate,

which  the  government  introduced  in  De­

cember,  and  which  has  suppressed  de­

mand for hard currency. Another factor is a

series  of  interventions  in  currency  mar­

kets by Turkey’s central bank. The latest of

these  came  on  February  22nd,  when  the

bank reportedly sold about $1bn in foreign

reserves,  helping  the  currency  absorb

some of the shock waves from the run­up

to Russia’s invasion of Ukraine. 

The lira may have recovered its footing.

But the spike in inflation set off by the cur­

rency’s collapse last year is here to stay. The

officially  reported  inflation  rate  rocketed

to a ghastly 48.7% year­on­year in January.

Forecasts  see  the  rate  peaking  in  the

spring,  and  finishing  the  year  well  above

30%, thanks largely to base effects. Surging

energy  prices,  as  well  as  widespread  fears

that  the  government  has  been  massaging

the inflation data, have sparked protests in

parts of the country. The leader of Turkey’s

main  opposition  party  has  announced  he

will  not  pay  his  electricity  bills  unless

President  Recep  Tayyip  Erdogan’s  govern­

ment reverses recent price rises. 

Unfortunately for Turks, who are quick­

ly  becoming  used  to  stockpiling  non­per­

ishables  and  basic  necessities,  stabilising

the  exchange  rate  will  not  be  enough  to

bring  inflation  under  control.  Inflation  is

bound  to  remain  high  because  of  rising

wages (Turkey recently increased the mini­

I STANBUL

With its president’s policies, Turkey

cannot hope to bring down inflation

The sum of all fears