INTRODUCTION, Giampli Bracchi and Donato Masciandaro
What will be the effects of the new forms of globalization for Italian banks and businesses, after the most acute phase of the global financial and economic crisis? How will the relationship with domestic and international markets change? In the continuing uncertainty of the economic scenario, the analysis of current trends in both the financial and real industries must proceed increasingly in a strongly integrated way. Globalization is following unprecedented trajectories, in which it is necessary to understand what role the Italian financial and industrial system will play. The Report started from an observation that is emerging forcefully in economic analysis: economic and financial globalization is shedding its skin, a phenomenon that had already begun to be recorded before the 2007-2008 crisis.
1. TOWARDS A NEW GLOBALIZATION IN THE ECONOMY AND FINANCE
Starting in the XNUMXs, the first phase of globalization had as its driving force new technologies, in particular ICT technologies, the integration of regulations and the opening of new continental economies, and as a fundamental effect the greater circulation of goods, services and people. Technologies and rules are the structural catalysts of any change: technology allows us to extend what we can do; the rules delimit the boundaries of what must be done. Technological developments – in particular, but not only, linked to the production, management and communication of information – have given companies and banks the possibility of overcoming traditional market and product barriers; regulation has generally supported this process.
Real and financial globalization has thus developed, with different times and methods, practically all over the world, also accelerating the growth of emerging markets. At the end of the 2008s, however, a New Globalization began to be noted, looking above all at the real economy (for example, see Grossman, Rossi-Hansberg, 2007 and also OECD, XNUMX) and observing what was happening in the processes productive. Technological development, which previously had mainly contributed to integrating markets, can now be fully used to fragment the company's production processes, in order to increase its ability to create value in markets which in the meantime continue to integrate.
The same phenomenon can be verified in the trend towards the transition from an international bank to a multinational bank. The fragmentation of the production process implies the possibility for the company and the bank to make choices along two different dimensions, for each economic function: to internalize or outsource (the "what"); locate or relocate (the “where”). Furthermore, each company or bank can participate in a process of fragmentation of the production (or value) chain as a buyer or a seller (the "as productive"). Finally, the restructuring of the value chain can also have profound effects on the company's relationship with the financial markets (the "as financial"): see for example the phenomenon of the so-called internal capital markets, both of companies (Boutin et al , 2011), and banks (de Haas, Van Lelyveld, 2010).
Therefore, the New Globalization tends to present itself in general as a strategic option with four dimensions (structural, geographical, market and financial), on which the competitiveness of both companies and banks may ultimately depend. The relevance of the new perspective is probably highly differentiated according to the company, the market or sector, the country of reference. In the case of Italy, with respect to the New Globalization, the effectiveness of the reference paradigms of our production and financial system, such as the medium-sized enterprise or the industrial district, must be analyzed and evaluated.
In the New Globalization, the role played by the evolution of regulation is still to be defined. On the one hand, it is necessary to take into account the fact – as noted in Accetturo et al. (2011) – that the fragmentation and heterogeneity of legal systems can hold back the New Globalization. From another point of view, the ongoing evolution of regulation could favor processes of efficient fragmentation; in the case of banking regulation, for example, it has been argued that the current evolution could favor the multinational bank over the international one (Mc Cauley et al., 2011). The reference framework became more complex with the great crisis of 2008-2009, to whose physiognomy the phenomenon of the New Globalization may also have contributed - as observed in Baldwin (2009) -.
The crisis, in addition to the fall in economic growth, has caused a still present increase in volatility and uncertainty. What will now be the effect of the combination of the New Globalization and the ongoing crisis on the physiognomy of the productive and financial system? With respect to this question, the Report seeks to offer elements of analysis and knowledge, linked – as is its mission – to Italy, while always from a comparative point of view. The analysis perspective that the Report has chosen regards, as in previous years, the relationship between the real economy, finance and rules. Therefore, in the selection of the works that later became chapters of the Report, those analyzes were chosen that dealt with three different specific areas, which correspond to the three parts into which the Report is divided: relations between banks and businesses; the strategy of the banks; the evolution in the design of rules and supervision.
2. THE RELATIONSHIP BETWEEN BANKS AND FIRMS IN THE NEW GLOBALIZATION
With regard to the relationships between companies and banks, the different configuration of the value chain that the New Globalization seems to encourage generally implies a reconsideration of the relationships between the company and the intermediary who can provide various intermediate inputs, of which trade credit only represents the most traditional and widespread example, at least in the continental experience. In this context, the main issue that has emerged so far is that of internationalisation. The New Globalization means thinking of a different relationship that companies and banks must have with foreign countries, in terms of products, functions and locations.
The Report, with the chapter by Masciandaro, Rizzi, first of all analyzed the joint evolution of the internationalization of Italian companies and banks in the period 2001-2009. Macroeconomic data offer some general indications. The analyzes show that over the decade our overall market share has remained substantially stable and profit margins have also held up, if we exclude the culminating months of the 2008-2009 crisis. However, the observation of the ability of the Italian productive sector to defend its positions must be accompanied by the awareness that internationalization, both real and financial, is mainly directed towards European partners and the United States, while relations with emerging countries are reduced and stagnant; furthermore, real and financial internationalization appear to be only weakly associated.
The Report has elaborated two indices, respectively real partnership and financial partnership, to identify where our real and financial activities are located. The first index – which considers both exports and direct investment abroad – sees Germany, France, Spain and the United States in first place. The financial partnership index – which considers our banking and financial activities abroad – ranks first among Germany, the UK, Austria, France and the USA. The ranking probably reflects the active role played by the major Italian banks in European countries, taking into account the presence in the top positions also of Croatia, Poland and Hungary. So the macroeconomic data tell us that so far Italian banks and businesses have been able to face the heightened international competition over the decade, but have not been able to intertwine their strategies in an important way with the evolution underway in the more dynamic economies.
This is not good news in terms of the competitiveness of our country system, as the role of emerging countries has been and will be central in the actual development of the New Globalisation. Furthermore, the weak link between real flows and cash flows could also be bad news, especially if it becomes a longer-term feature. In fact, a country whose production structure creates value abroad in a stable manner will be characterized by a consistent trend of real and financial flows: if value is created, financial assets accumulate. The reasons for concern on the degree of competitiveness, effective and prospective, of our companies are confirmed by the two works edited by Guelpa and Altomonte.
The first analyzes how the paradigm shift imposed by the New Globalization brings out as crucial some critical issues that on average characterize our productive fabric: reduced quality of human capital, low innovative capacity in the area and finally excess debt in the financial structure, compared to the endowment of venture capital. The absolute and relative level of debt and its characteristics are a crucial factor in determining the degree of competitiveness of firms. A firm is competitive if the cost of borrowing reflects its ability to create value. This relationship must also hold in times of crisis. Altomonte's study shows that in Italy - but also in France, the United Kingdom and Sweden - during the crisis, probably in order to guarantee the flow of available credit, the link with productivity weakened. It must also be said that traditional productivity indices are to be handled with great caution – as Guelpa rightly observes – because it is not certain that they capture the phenomena that are characterizing the New Globalisation.
In any case, at least during the first phase of the crisis, there does not seem to have been a penalization of companies in terms of credit rationing and debt burden: the Altomonte data show that in Italy 48% of companies obtained additional credit lines , and 54,5% without an increase in costs. Furthermore, in the case of firms in which the cost of credit has increased, the growth in charges has been consistent with firm productivity, at least for SMEs. In fact, the increase in the cost of credit in 2008, compared to the average level of the period 2000-2007, appears to be associated with the level of productivity: the less productive firms, therefore more risky, saw a change in cost up to 6,3, 1,5%, while for the most productive companies the onerousness remained almost unchanged (increase of XNUMX%).
It is interesting to note that during the crisis, in the event of an increase in the cost of credit, the correlation between changes in cost and productivity is lost for large companies, which however probably start from lower absolute levels, as they are generally perceived as less risky. More generally, during the crises it has been possible to observe a worsening of the ability to allocate credit, also as a cause of the reduced screening capacity that the banking system typically displays in the phases of expansion preceding the crises. The aggregate effect is that of a worsening of bad debts during the recession, which is associated with the expansion of loans that was recorded during the previous expansion. In other words, loans typically have a pro-cyclical trend, while non-performing loans show an anti-cyclical profile. This result is also confirmed in the last crisis, as shown in the chapter by Di Colli, Di Salvo, Lopez, analyzing the period from 1998 to 2010, and looking at the Italian banking system as a whole.
Therefore, at least during the first phase of the crisis, the system seems to have guaranteed the availability of credit, at the cost of a physiological deterioration in the allocation. This result shouldn't necessarily worry us, insofar as the phenomenon is temporary in nature, given that before the crisis, the credit decisions of Italian banks appear to be consistent with the creation of value produced by internationalisation. The empirical evidence offered by the work of Frazzoni, Rotondi, Sobrero, Vezzulli goes in this direction, showing an interesting relationship between the stability of bank-firm relations, the ability to innovate and the ability to export.
Equally interesting results are presented by Bartoli, Ferri, Maccarone, Rotondi, who find that the ability of small businesses to export is associated with the stability of the bank's relationship, above all if the banking interlocutor has an international dimension. Therefore, in the first phase of globalization, traditional internationalization seems to have found an effective boost in the relational bank model, which distinguishes our intermediation system. But what will be the effectiveness of this model in the perspective of the New Globalization? If the value chain fragments, both risks and opportunities open up for banking intermediation - as often happens - some of which are analyzed in the report.
The risk is linked to the increase in complexity and volatility, which tends to erode the information advantages on which the peculiarity of the relational banking model is based. At the same time, however, the relational bank can develop a plurality of services, different from the mere disbursement of credit, as underlined in the essay by Arnone, Faraci dedicated to local banks in industrial districts, which accompany the choices of companies wishing to address strategies consistent with the paths that the New Globalization will be able to suggest, or impose. Furthermore, the nature of the relationship between the bank and the company will be strongly conditioned by the path that the regulation will concretely decide to follow in this sense. Anticipating a reflection that we will develop further on, relations between banks and companies consistent with the trajectories of the New Globalization could find a catalyst, or rather a brake, in post-crisis regulations.
In this regard, the chapter edited by Brogi shows how the objective of reducing systemic risk in the banking and financial industry has led to the rediscovery of structural regulation and supervision, which can directly affect the methods of interaction between the banking intermediary and the industrial or commercial enterprise. The analysis of the sixteen largest European banking groups shows that the adoption of forms of structural regulation could have significant effects on the relations between banks and businesses, and highlights the problem of the separation between funding and lending on the one hand, and investment banking and asset management activities on the other. Furthermore, in redefining bank-firm relationships, especially at the local level, it will also be necessary to rethink the role of the so-called intermediate institutions, such as the Confidi, the subject of the essay edited by Leone, Porretta.
These structures are still based on old insurance logics and often lack the technical equipment necessary for adequate risk management and pricing, a situation which in the crisis exposes them to deterioration of the risk profile of the guarantee portfolio and to an increase in substandard and sufferings. To continue to make the trinomial banks-consortia-SMEs virtuous in the current critical market context, repositioning strategies must be implemented which involve an efficient organizational structure and sizing, the targeted outsourcing of activities, the introduction of adequate professionalism to govern the risk-income ratio and a reasonable capital base.
The financial structure of the company will then have to take into account hedging opportunities other than commercial credit, based on risk capital, such as private equity. The Report dedicates the chapter by Gervasoni, Scionti to the prospects of private equity, which analyzes, among other things, how the Italian private equity market could be influenced by the regulations recently outlined in Europe. Attention to new issues of sustainability – according to many, the development of so-called green finance will be one of the consequences of the New Globalization – is also addressed in the work edited by Bagella, Busato.
3. GOVERNANCE AND ALLIANCES
The perspective of the New Globalization can also have consequences in the design of banking and financial governance, understood in its broadest sense. By its nature, the intermediary produces and distributes intermediate inputs, so the fragmentation of the value chain can be reflected not only in relations with the real economy, as already underlined, but also in the definition of market strategies, as well as the business organization. With regard to strategies, banks must necessarily rethink the topic of alliances, broadening the horizon of possibilities, beyond the traditional options of mergers and acquisitions. The Report – with the chapter edited by Amici, Fiordelisi, Masala, Ricci, Sist – offers an original analysis of non-traditional alliances, other than mergers and acquisitions, and represented by integrations obtained through strategic alliances and joint ventures.
An examination of 208 transactions, 16 of which Italian, which took place in the period 1999-2009, shows that the market tends to appreciate joint venture transactions implemented by banks, above all in the case of transactions also characterized by the presence of non-financial intermediaries banks or non-financial companies. Furthermore, joint ventures aimed at expanding abroad are appreciated, while operations – such as simple strategic alliances – in which the sharing of risks and opportunities is weaker, compared to joint ventures, do not seem particularly appreciated. The use of targeted joint ventures, as an alternative tool to mergers and acquisitions, will have to be seriously considered by Italian banks, none excluded. In fact, even the largest banks can identify operations that increase overall efficiency, without necessarily going through mergers and acquisitions.
This indication is also supported by the results reported in the chapter by Caiazza, Pozzolo, who examined failed mergers and acquisitions. 20.000 banking operations were examined worldwide, attempted in the period between 1992 and 2010 (37 of which were Italian) in over 150 countries. It is interesting to note that the average amount of failed transactions is more than double that of successful transactions, while the number of failed transactions is on average 5% of the total. The failure of a bank merger operation appears all the more probable the more the operation is hostile and regulated in ways other than cash. Furthermore, the probability of failure increases as the size of the acquisition increases.
On the other hand, with regard to the design of governance, there is no doubt that the reconsideration of the value chain also presupposes a reconsideration of the effectiveness of the ownership and control allocation mechanisms, on the relevance of which many doubts have arisen after the crisis. In fact, the cases of corporate instability in the banking and financial sector - sometimes resulting in situations of real systemic instability - have affected industries and country systems until then considered robust and reliable precisely from the point of view of the design of governance architectures . There is no doubt that, at least until 2008, the corporate results of banks may have been associated with the institutional asset represented by governance, as shown by the work edited by Battaglia, Meles, Starita, or with the intangible asset of reputation, as analyzed in the chapter by Soana, Schwizer. But is that still the case? And following what directions?
4. THE ROLE OF REGULATION
The crisis has undoubtedly shaken the pillars on which the relationship between economic and financial efficiency, on the one hand, and the design of rules and institutions, on the other, was founded. In the last two decades, the approach to economic regulation – including that specific to banking and financial intermediaries and markets – seemed to have definitively aligned itself, with excellent results, to the principle of consistency with individual incentives. Good regulation allows for the maximization of individual choices; this automatically ensures an optimal aggregate allocation of resources. In the field of banking and finance, if the rules – so-called market friendly – allow everyone to optimize risk management and/or assumption, the optimal allocation of resources, both in terms of growth and systemic stability, will be guaranteed.
The crisis has demolished this certainty. The chapter edited by Dalla Pellegrina, Masciandaro shows how the empirical analysis of the 2008-2009 economic crisis highlights that the role played by institutions, rules and regulations, including banking and financial ones, in determining the macroeconomic performance of a country is anything but how obvious. Therefore it is necessary to rethink the reference paradigms, also by exploring new research paths. The Report concentrates its attention on the role of supervision - dedicating to it the work of Carretta, Farina, Graziano, that of Carretta, Liccardo and Nicolini and that of Donato, Cossa - which must be valorised, after a period in which excessive trust in the safeguards represented by the capital ratios and by the so-called market discipline, it has ended up diminishing and removing responsibility from the supervisory action, above all in the Anglo-Saxon world.
In conclusion, it is true that on an international level Italian companies and banks were able to face, during the first years of the new century, both the increased competition and the delicate transition at least in the first phase of the financial and economic crisis. The banks have guaranteed the availability of credit at non-penalizing conditions. But the perspective of the New Globalization, if consolidated, can profoundly change the ways in which strategies are defined, in particular, but not only, with respect to the challenge of internationalization, with particular attention to relations with emerging economies. It is also necessary to look beyond Europe. With regard to the relationship between the bank and the economy, so far Italian banks have been able to be effective partners for those companies, even small ones, which have been able to combine innovation and internationalization. But these companies do not yet have a critical mass with respect to the country system.
Banks, for their part, must ask themselves how the New Globalization can change strategies, both in terms of relations with companies and in internal organisation. New avenues must be considered, such as that of strategic alliances with non-banking partners, above all in the perspective of internationalization. The unknown factor hangs over the whole scenario not only from the continued weakness of the markets and the sovereign debt crisis, but also from the regulation itself, which could hinder, rather than favor, relations between banks and companies consistent with the search for new paths for value creation.
BIBLIOGRAPHY
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