The Governor of the Bank of Italy, Ignazio Visco, is right to stimulate Italian banks to do more, both in cutting costs and non-performing loans, and in growing revenues and profits and in offering greater transparency, but the numbers they say the breakthrough is already underway.
For most of the banks, the presentation of the 2017 financial statements which took place in recent days was the confirmation that a new era had begun, in which Italian banks have become more solid, less risky and profitable again. The Stock Exchange has also noticed this, with the Ftse banks index rising by 37,12 per cent in one year. The numbers speak for themselves.
Only considering the four most profitable banks (Unicredit, Intesa Sanpaolo, Banco Bpm and Ubi) the total profits achieved in 2017 exceed 10 billion net. In the lead is Unicredit which, after the spectacular 13 billion capital increase in which no one initially believed, has forcefully returned to profit generating the beauty of 5.473 billion in net profits, which are impressive considering that 2016 was closed with a deadweight loss of 11,8 billion mainly due to adjustments.
Intesa Sanpaolo's profit pool is also very significant, which has been profitable for years but which in 2017 reached 3,8 billion euros, the highest since 2007, with a growth of 23% compared to 2016, which allows once again to distribute a rich dividend which brings the payout to 80% of profits, the highest among Italian banks and among the largest in Europe.
The two main former Popolari, both Banco Bpm and Ubi, also did well, coming out of the deep red of 2016 with a substantial profit in 2017 and with the consequent return to the dividend. In the first year of marriage between Banco Popolare and Bpm, the banking group led by Giuseppe Castagna went from an aggregate loss of 1,2 billion to a net profit of 558 million euros, thanks also to the proceeds collected from the sale of the Bank Aletti Gestielle to Anima Holding. In turn, Ubi, which had closed 2016 with a loss of 830,2 million, achieved an accounting profit of 2017 million in 690,6 which, net of non-recurring items linked to the acquisition of Banca Etruria, Banca Marche and Carichieti, means a net profit of 188,7 million against the loss of 474,6 million in the previous year.
It is true that the economic cycle has given a hand to bank balance sheets but if we consider that the interest margin continues to suffer from the very low rates of the ECB, the result achieved is very significant, above all if we take into account that the surge of profits is mainly based on the boom in commissions (above all in managed savings) and on a sharp drop in costs and adjustments, which accompanied the drastic cut in NPLs.
All things considered, the net profits generated by the four most profitable banking groups exceed 10 billion and promise to remain high again this year.
Naturally all that glitters is not gold and the losses of the three groups (Mps, Carige and Creval) which started the restructuring and the clean-up of the balance sheets late are still heavy. In 2017, Monte dei Paschi, which is finally showing signs of awakening, lost 3,5 billion, 332 of which Credito Valtellinese lost and 291 of which Carige lost.
Therefore, the recovery of profitability is welcome, but there is a serious danger looming over Italian banks and which Governor Visco clearly highlighted at Forex in Verona, namely that Northern Europe, going beyond the prudence of the Committee of Basel, imposes restrictive one-way rules on government bonds held by the banks themselves by providing for quantitative limits or new capital increases.
After the austerity policy, it would be an unforgivable mistake for the European Union which so far has targeted the NPLs of Italian banks but has turned a blind eye to the loose cannon of derivative products of French and above all German banks. "Changes in the prudential treatment of government bonds held by credit intermediaries, especially if badly designed or badly calibrated, risk - warned the Governor - of being counterproductive" and "especially in times of systemic tension, can end up generating crises they would like to avoid, triggering phenomena of financial contagion or fueling speculative movements".
Visco's warning is very clear. As Alessandro Graziani shrewdly noted in Il Sole 24 Ore, there is the risk that "the Yalta of the financial system" will be born and it is about time that, in view of the forthcoming elections, the ruling class - not to mention the media, always ready to look the finger without never see the moon and believe that the problem of problems is Matteo Renzi's temper – if he noticed it. To avoid misfortunes such as those wisely evoked by the Governor and previously stagmatized by Mario Draghi, we need a government which, instead of suffering the dangerous dislocations on Europe now of the League and now of the Five Stars, had the strength and authority to make itself heard in Brussels.
Leaders like Gentiloni or Renzi for the center-left or like Tajani for the center-right would certainly be able to talk to Macron and Merkel, but can you imagine Salvini or Di Maio? Who would ever listen to them and before the two populist leaders saw the danger, the oxen would have already left the stables. Most Italians and the political forces themselves do not know it, but the future of the country is played out precisely on this terrain and its key is in the polls on 4 March. Good luck.
