Hens Nesting on Rocks

Italians loathe free competition, wrote Author Luigi Barzini, preferring to protect themselves by rigid organization. Barzini's theory is especially borne out among old-guard Italian financiers. To preserve their power -- and the value of their investments -- they arrange for their firms to control one another through a cozy network of holding companies. Chemical-making Montecatini Edison, Italy's largest private industrial corporation, was long the leading shareholder in both Italpi and Sade-Finanziaria, holding companies that, as it happens, control Montecatini Edison. Italmobiliare is 100% owned by Italcementi, an important shareholder in Bastogi, which in turn owns more than 10% of Italcementi.

As might be expected, many of these incestuous financial marriages turn out to be sterile. Prizing security above all else, Italy's interlocked industrial and financial titans have been reluctant to take the risks that are necessary to stimulate the country's economic growth.

At the same time, they have long wielded enough power to inhibit rivals from venture investment in Italy. The Italian stock market is controlled by about 20 financial companies of such interwoven ownership that their directors answer mainly to themselves. So few investors care for these conditions that the total value of shares traded on the Milan stock exchange in a year barely equals that traded on the New York Stock Exchange in a week. Worse, the system has begun to bleed Italy of funds that the country needs at home. During the first six months of this year, some $1.5 billion in capital went abroad in search of more profitable ventures. The outflow gave Italy an $897 million balance-of-payments deficit after five years of healthy surpluses.

Out of the Syndicate. The unhealthy financial system has come under attack from several fronts lately, as both the government and forward-looking private investors have sought to pry open the country's long-closed business establishment. Acting through a state-owned investment bank, the government-owned holding companies ENI and IRI quietly bought effective control of Montecatini Edison last October. Once in power, the state agencies ousted both Sade-Finanziaria and Italpi from a syndicate of controlling stockholders because the companies were owned by Montecatini.

In the private sector, a group of businessmen led by Cesare Merzagora, former president of the Italian Senate and now head of Assicurazioni Generali, the country's largest insurance firm, challenged Bastogi, a big holding company in which Assicurazioni owns a major interest. Decrying Italian financial companies as "a group of hens nesting on rocks," Merzagora's group demanded that Bastogi try to stimulate private investment rather than keep its capital in the serenity of real estate holdings. Another group, headed by Insurance Executive Ettore Lolli, joined with Tiremaker Leopoldo Pirelli to oust the conservative management of La Centrale, a holding company that had most of its $200 million portfolio in real estate and food. The new management has turned La Centrale toward a more active role in both domestic and foreign investment.

Sicilian Challenge. Probably no one has done more to shake the country's old financial structure than Michele Sindona, 49, a Sicilian lawyer who came to Milan as a tax expert in 1947 and now heads a financial empire that spans three continents. Sindona, who learned how holding companies operate while helping leading corporations get around Italy's obsolete and cumbersome tax laws, formed his own financial company, Fasco, and began buying and selling companies.

He leaped from obscurity to international prominence in 1964, when he took over the U.S.-owned Libby, McNeill & Libby and the Brown Paper Company of Berlin, N.H. Later he sold both firms at a profit, and has since bought and sold his way to the presidency or chief executive's seat of eight companies, the vice-presidency of three others, and board membership in several more. His financial acumen stood him in good stead, last September, when he gained control of the Societ`a Nazionale Sviluppo Imprese Industrial!, a private fief of Venetian financiers, and transformed it into an international merchant bank.

Sindona's moves have shaken the confidence of the financial old guard, who now worry where he will strike next. He hopes to attract more U.S. investment to Italy, both for joint ventures between Italian and American companies, and for outright takeovers of Italian firms by Americans. As Sindona sees it, that is the only way Italian business can hope to catch up with U.S. business in organization and management technique.

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