THE FOUNDATION’S ACTIVITIES AND IMPACT IN THE ITALIAN SOCIETY

History

Banking Foundations (“Foundations”) are non-profit, private and autonomous entities that originated in the early 1990s to carry on the socially-oriented activities that the former Savings Banks and Pledge Banks conducted together with their lending business. When they came into existence, the Foundations obtained equity interests in such banks, which they have been gradually selling, also as required by law.

It is worthy of note that the legacy of the Foundations is rooted in the original Savings Banks which, founded in the early nineteenth century, engaged in two seemingly contrasting areas. They were both credit enterprises and charitable institutions, exercising both pursuits in their local communities. In the 1990s, on the spur of the I and II Directives on credit concerning freedom of establishment and banking despecialisation, law no. 218 dated 30 July 1990 was passed (so-called “Amato” law), along with the relevant implementation decrees, and both Savings Banks and Pledge Banks underwent a radical and profound change, resulting in the separation between charitable and banking activities. Thus, their banking operations were transferred to ad hoc joint-stock companies, which were for all intents and purposes private commercial enterprises governed by the Civil Code and banking laws, just like other banks. On the other hand, the cultural and charitable activities undertaken to achieve socially-oriented objectives were attributed to the Foundation.

There are 88 Banking Foundations, which engage solely in socially-oriented and economic development undertakings. They have substantial resources available, which are deployed in diversified, prudent and profitable investments. They use the income generated by the proper management of these investments to accomplish their institutional purpose, i.e. to provide support to various collective-interest sectors (from art to culture, from research to education, from support to the underprivileged to local community development, etc…) through projects implemented both directly as well as exclusively by private or public non-profit entities.

The Foundations play an active role in Italy’s social and economic life, both as philanthropic institutions and as important institutional investors. Italy has obtained considerable benefits since the Foundations were established, including among others:

  • the restructuring of the banking system, especially through significant integration processes;
  • the availability of resources to carry out, autonomously and in a subsidiary manner, socially-oriented and economic-development projects, in accordance with plans proposed by the Foundations, the non-profit sector and local authorities. In this way, the gap has narrowed between Italy and the Anglo-Saxon world, with respect to the presence of private initiatives and institutions in such areas as scientific research, landscape and art preservation and social solidarity;
  • partnership opportunities with local and national entities (such as Cassa Depositi e Prestiti S.p.A.).

All this thanks to the Foundations’ ability to operate autonomously, sense of responsibility and sharing of the subsidiarity principle. While these traits are common to all of them, they are by no means exhaustive. In fact, each Foundation is a fully autonomous entity, has its own bylaws, with its own criteria for electing its governance bodies; has its own purposes laid down in the bylaws, in keeping with the specific culture of the community in which it operates and its origins. Concerning this last aspect, in particular, attention is called to the associative nature of some of the original Savings Banks, which were established as stock corporations with capital contributions by private citizens, and to the institutional character of others, which were founded with the help of entities and organisations of civil society.

Philanthropic entities

As philanthropic entities, the Foundations donate over one billion euros a year (during the past four years grants have been growing by 7% a year). Every three years, each Foundation selects five out of the eligible sectors – the so-called relevant sectors - to which most of its grants will be disbursed (at least 50% a year).

According to the latest accounts prepared, in 2005 the major 16 Foundations, which represent almost 75% of the system as a whole,donated a total of 1,031 million euros (up 5,4%, from 2004), allocated as follows: 31.1% to the Art sector, cultural activities and resources; 16.3% to Volunteer activities, philanthropy and charity; 0.4% to Education, learning and training; 9.0% to Public health; 11.3% to Social Assistance programmes; 10.3% to Research; 6.2% to Local Development. The other sectors were far behind, as they received collectively 4.1% of total grants.Chief among these were Environmental protection and quality, Sport and recreation, Family and related values.

The Foundations tend to concentrate their grants more than scatter them around. In fact, grants for less than 5,000 euros represent 45% of total disbursements, but account for only 2% of the total amounts donated. On the other hand, grants for more than 100,000 euros use up 75% of the whole and, out of these, projects for more than 500,000 euros receive more than 47% of total grants. This is an indication of the progressive shift of the Foundations toward increasingly complex and challenging initiatives, often carried out in partnership with other entities.

Even though the law attributes them a generalist role, the Foundations are not stretched thin but are quite focused: 52 Foundations disburse to their first sector of operations over half their grants (or more than 60% to the first 2); the other 36 provide to their first sector of operations more than 30% of their donations (or more than 40% to the first 2).

The main recipients were mostly private entities, with 59.1% of grants, including foundations, associations and volunteer organisations. Among public entities, which received the balance, the main recipients were local authorities, with 23.2% of total grants.

Concerning geographic distribution, the Foundations show a preference for their regions of origin, which receive 82.5% of total grants. As already noted, since for historical reasons the Banking Foundations are mostly located in Northern and Central Italy, these areas are the main recipients of grants. In fact, Northern and Central Italy receive 70.8% and 25.3% of total grants, respectively, while Southern Italy and the Islands obtain 3.9%. This last figure is low but rising, compared to the past, thanks also to such rebalancing initiatives as the Southern Development Project promoted by ACRI, the associations representing the Banking Foundations. Moreover, recently ACRI, in cooperation with Volunteer organisations, started a process to establish a Foundation for Southern Italy.

Institutional investors

The Foundations are able to disburse grants thanks to the income generated from the investment of their net assets which, in 2005, amounted to over 45 billion euros. Such net assets are distributed among institutions that vary significantly in terms of size and geographic area of operations, with half concentrated in the first five Foundations: Fondazione Cariplo, Fondazione Monte dei Paschi di Siena, Compagnia di San Paolo, Fondazione Cassa di Risparmio di Verona Vicenza Belluno e Ancona, Fondazione Cassa di Risparmio di Torino.

The Foundations are first of all required to preserve the value of their net assets. Between 1993 and 2005, the Foundations’ aggregate net assets rose from 21.5 billion euros to 45.9 billion euros, with an average compound annual growth rate of 6.5%.

They are also required make prudent, profitable and diversified investments. Currently, the Foundations’ investments include shareholdings in banks ad other assets. According to the 2005 accounts, shareholdings in banks accounted for 25% of total assets (amounting to approximately 52 billion euros), or 13.3 billion euros. Other income-producing assets included financial instruments other than bank shareholdings, amounting to 35.9 billion euros, or 69.1% of the total. Real estate investments represented slightly more than 1% of total assets.

Currently, out of 88 Foundations, 15 no longer have a shareholding in the bank from which they originated while 57 hold minority interests. The other 16 have an equity interest of more than 50% in the banks from which they originated (in accordance with the law, as they either have net assets of less than 200 million euros as at 31 December 2002 or are located in special statute regions), representing 4.8% of the Foundations’ total net asset, while their investee banks account for less than 2% of the banking system’s total assets.

The average return on the Foundations’ total net assets has risen over time, as it went from 2% in the 1993-1999 period to 5% in the 1999-2004 period, while the return on net assets in 2005 alone was 6%.

In 2005, the return on bank shareholdings, as measured on the basis of their book value, stood at 7.2%, which was slightly up, compared to 6.9% in 2004. The return on financial investments was 4.4% (against 3.7% in 2004).

Regarding diversification, the Foundations have rapidly implemented the recent law which allows them to use their resources in connection with their institutional purposes, acting both to develop local economies (often together with local authorities, in public utilities) and at national level in a coordinated way (66 Foundations) for infrastructure development, by purchasing 30% of the share capital of Cassa Depositi e Prestiti S.p.A. (Loan and Deposit Fund). The private nature of the Foundations has made it possible to develop a partnership with the Ministry of the Treasury in the Cassa, where they monitor closely the day-to-day operations (lending to private entities).

One of the latest development involves investments in private equity funds. In this respect, one kind of investment that is not very widespread in Italy, but is very important for economic development, is venture capital, i.e. funding of new companies. The high risk associated with venture capital prevents Foundations from investing substantial sums in this area. However, the Foundations might help with the development of venture capital in Italy, if these investments could be accounted as grants disbursed for institutional purposes.

Antonio Miglio

Chairman Fondazione Cassa di Risparmio di Fossano

Chairman of the Consultative Committee of Foundations of ACRI

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