The Italian Exception

While many European companies are removing their CEOs, in Italy, not even an indictment will cost some top executives their jobs. Consider Cesare Geronzi, 69, the chairman of Capitalia, a €128 billion consortium of banks, including Banca di Roma. Regarded by many as Italy's most powerful banker, he faces trial next month on charges, which he denies, that Banca di Roma provided false information to regulators in 1996. More recently, Geronzi's name has surfaced in some better-known financial shenanigans. In the summer of 1999, dairy firm Parmalat — already deeply indebted to Banca di Roma — paid the equivalent of €336 million to food firm Cirio for the Rome-based milk-processing company Eurolat, a price that some analysts considered inflated. In the €14 billion rabbit hole of Europe's biggest corporate scandal, the Eurolat deal may seem relatively small. But it is of interest to prosecutors, because Parmalat founder Calisto Tanzi and finance director Fausto Tonna say the purchase was Geronzi's idea. "Given our exposure to Banca di Roma, we weren't in a position to have real negotiating power," Tanzi told prosecutors, according to court documents obtained by TIME. Geronzi and former Cirio chief Sergio Cragnotti have denied that Geronzi orchestrated the sale, insisting that Parmalat got an above-board deal. Both Tanzi and Cragnotti, whose company's €1 billion collapse is a little sister to Parmalat's, have been tossed from their thrones and face criminal investigations. But how did these two supposed powerhouses wind up in such deep debt to Geronzi?

Geronzi hasn't been charged in either the Parmalat or Cirio case. But some say it's time to put the entire banking system on trial. Italian capitalism has always been a little different from most of the Western world's. Only 275 companies are publicly traded, and more than three-quarters of the largest listed firms are controlled by a single shareholder. Instead of funding themselves through the market, Italian companies often spring up from family businesses, where they learn to rely on banks. "We have an economy dominated by banks," says Italy's former President Francesco Cossiga. "At a certain point, the bank becomes a partner of the company it is lending to."

The system gives great power — but little oversight — to men like Geronzi. Banca di Roma was one of the few big backers of both Cirio and Parmalat, but many banks granted them loans and issued bonds without much due diligence. Parmalat's bankers, which included top foreign lenders, insist they were victims of company misrepresentations. But a Milan investigator in the Parmalat probe tells TIME: "You can be a victim, but at the same time responsible. The banks went out seeking Parmalat right up until the very end. You couldn't not see what was in the balance sheets." Few bankers have as much clout as Geronzi. Tall, with silver hair and a comfortable smile, he has the air of an untouchable. His Capitalia has some of the worst asset quality ratings in Europe, with roughly 12% of its loans listed as "non-performing," four times the European average. While some criticize him in private, few would speak on the record. "Geronzi represents the old Italy of doing business through political relationships," says one analyst. "It has kept him in his position for a long time."

Geronzi's most potent power tie is with Bank of Italy governor Antonio Fazio, who became a personal friend after they started their careers together at the central bank. Those links were criticized after Fazio, who has a life term as governor, gave the green light to the merger that created Geronzi's banking empire. Says Giorgio La Malfa, who heads the Lower House's finance committee, "Capitalia has a backlog of bad loans. If I had to name one single responsibility that Fazio has to account for in recent years it is in not looking closely at the problems with Capitalia. Parmalat and Cirio confirms this judgement." (Like most central bankers, Fazio rarely gives interviews and he declined TIME's request for one.) In his defense, a Bank of Italy official says Fazio has presided over a thorny privatization of the entire sector, and could not dismantle the old banking system in one fell swoop. Geronzi, who declined several TIME requests for an interview, denies any wrongdoing. He has not been placed under formal investigation in the Parmalat case. Capitalia, however, is not immune to Parmalat's collapse, having had the largest outstanding debt exposure — €393 million — to the dairy firm among Italian banks.

Even so, Capitalia shares climbed over 70% last year, due in part to the popularity of CEO Matteo Arpe. Arpe, 39, is seen as one of the rising stars of Italian finance, having built a reputation as a squeaky-clean reformer with Milan-based merchant bank Mediobanca. At Capitalia, he has tightened requirements on corporate loans and even reimbursed retail customers for worthless Parmalat and Cirio bonds. So maybe Italy is injecting some fresh DNA into its executive gene pool. What keeps its corporate culture distinct, though, is that it feels little need to oust the old boys.