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Italy Puts Idea of State Stake in Fiat on Hold

Italy's government has put on hold the possibility of buying a stake in Fiat, a source said on Friday as the Treasury appointed investment bank Morgan Stanley to help tackle a crisis at the carmaker.

Italy's government has put on hold the possibility of buying a stake in Fiat, a source said on Friday as the Treasury appointed investment bank Morgan Stanley to help tackle a crisis at the carmaker.

With Fiat workers downing tools in a general strike against the government's general economic policies on Friday - the latest in a string of stoppages at Fiat's car plants - a source at the Treasury said a state stake in Fiat was off the table for now.

"The hypothesis of a direct intervention in the (Fiat) group share capital has been frozen," the source said, adding: "It never got to the stage of asking the question of whether (we would invest) in the group or the auto unit."

Prime Minister Silvio Berlusconi has said his government will seek to strengthen Italy's struggling auto sector, raising speculation that the state, along with banks, might buy into Fiat, which has seen its losses balloon as sales slumped.

The government wants to "safeguard" Fiat's six factories in Italy and has come under pressure from within its own alliance as well as the powerful Catholic Church to soften Fiat's plan to lay off 20 percent of its Italian auto workforce.

Trade unions have taken up the Fiat cause and at marches across Italy on Friday to mark a one-day general strike called by Italy's biggest labour confederation, demonstrators demanded two Fiat plants marked for closure should stay open.

But in a blow to the government's hopes of finding fresh cash for Fiat and reducing the job losses, the group's creditor banks this week said they would not buy into struggling car arm Fiat Auto and stood by the group's cost-cutting purge.

The banks are believed to want Fiat's controlling Agnelli family to dig into their own pockets by selling off assets within their vast business empire, which ranges from cars and trucks to department stores, insurance and publishing.

The head of Fiat Auto Giancarlo Boschetti held a "technical meeting" with representatives of the creditor banks in Turin on Friday, said a banking source.

Umberto Hints Again at Lower Agnelli Influence

Umberto Agnelli said on Friday that the family holding companies Ifil and Ifi, which he heads, would see their combined, controlling stake in Fiat fall from about 30 percent now if the creditor banks decided to convert a three billion-euro loan into Fiat equity.

Under the loan agreement struck in May, the banks have the option of turning the loan into equity if Fiat misses a target to halve its net debts by early 2003.

Agnelli has previously said the stake might not always be "strategic" for the holding companies and Friday's comments appeared to repeat the suggestion that the family's influence could wane after more than 100 years in charge of Fiat.

To help tackle the crisis at Italy's biggest private sector employer, the government on Friday named Morgan Stanley as an advisor. A Treasury source said the government wanted the bank to "monitor the financial sustainability of the (Fiat) group", but no further details were immediately available on Morgan Stanley's role.

Fiat needs support from the government so it can access state funds to cover the cost of the planned redundancies.

Fiat has an option to sell General Motors Corp. the remaining 80 percent of Fiat Auto from 2004. GM already owns 20 percent. This week, GM said the option would be eliminated if there was a change in control of the Fiat group.

Fiat Auto is expected to lose more than one billion euros this year. Business magazine Il Mondo said on Friday that more than a third of the car division's capital stock had been wiped out since a 1.8 billion-euro recapitalisation in May and June.

With Fiat unable to reverse a slide in its Italian market share to a record low of under 29 percent, most analysts say the best solution is the sale of its auto division to GM in 2004.

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