ETF Trends
ETF Trends

Italy’s new shareholder rules could trigger greater merger and acquisitions activity in the financial sector, bolstering the country-specific exchange traded fund.

The iShares MSCI Italy Capped ETF(NYSEArca: EWI) rose 1.7% Tuesday. EWI, though, is still down 15.6% over the past year and 2.1% lower year-to-date.

Under a new decree issued Tuesday, about 10 cooperative banks with at least €8 billion in assets, or $9.25 billion, will become joint stock companies with voting rights based on the size of each shareholder’s stake, the Wall Street Journal reports. The reforms will replace the outdated rule stating that shareholders of cooperative banks have one vote regardless of the size of their stake.

Banks affected by the change will have 18 months to make adjustments and become joint stock companies.

“This measure strengthens the Italian banking system, which will improve little by little as the economic recovery is consolidated,” Italy’s Economy Minister Pier Carlo Padoan said after a cabinet meeting.

The financials sector accounts for 36.6% of EWI’s underlying holdings.

Italy has one of Europe’s most fragmented banking industries, with about 600 different lenders, reports Silvia Aloisi for Reuters.

Consequently, the changes could fuel debate over industry consolidation to target greater returns and economies of scale encouraging mergers and acquisitions, according to Mediobanca Securities. Specifically, the reforms would turn these types of banks into possible takeover targets almost instantly. For instance, the new rules could be a catalyst for a potential merger between UBI Banca and Banca Monte dei Paschi di Siena. [Greece Slide Hurts Italy, Spain ETFs]

EWI includes a 2.8% position in Mediobanca Banca Di Credito and 1.6% in Banca Monte dei Paschi di Siena. Banco Popolare, Italy’s fourth largest bank, which makes up 2.5% of EWI, also jumped 5.7% Tuesday.

“The abolition of the per-capita voting right would transform Popolari banks into public companies,” Riccardo Rovere, Mediobanca SpA (MB), said in a note, according to Bloomberg. “This would likely reignite the debate on consolidation, also because the merger between Popolari banks and joint stock companies could be facilitated.”

iShares MSCI Italy Capped ETF

For more information on Italy, visit our Italy category.