“The banks are going down, all because of the bail-in”, headlined the Huffington Post a few days ago. I start from here to respond to the request for clarification formulated on my position not exactly in favor of "traditional" banks expressed last week.
But what is bail-in? In a guide prepared by the Italian Banking Association, with the involuntarily humorous title "You and your bail-in", we read: “It is a forced withdrawal where a saver can be called upon to pay with his own savings for the instability caused by the managers of the bank in which he has trusted.”
Hard to do worse…
Let's try to put it a little simpler and hopefully a little clearer: every current account holder, natural or legal person, sees their current account protected up to 100.000 euros in the event of bank default. The guarantee is provided by the Interbank Deposit Guarantee Fund. Bonds, government bonds, shares, repurchase agreements are not guaranteed. If you have an account in a community bank, up to 100.000 cash you are guaranteed, for sums exceeding this limit and for all investments in securities and funds the aforementioned guarantee does not apply. But this is nothing new, in fact this limit has existed since 2011 and there was already a ceiling on the "guarantee" before. If anything, the novelty is that since 2016, the sums not subject to guarantees can be used to cover the losses generated by the bank in default. But it doesn't change anything: if you don't give it back to me, I don't really care what you do with my money.
In & Out
The market has therefore not been frightened by the bail-in. In conclusion, it just went through the bail-out, save the badly managed banks with state money, to the bail-in, where I save the badly managed banks with the assets of its customers. The market, on the other hand, is literally terrified of bank non-performing loans and what fuels the flight from Italian banks is that the much-proclaimed agreement between Italy and the EU on the state guarantee of non-performing loans actually presents many unclarified points.
The banks suffer
According to the latest data available and dating back to last November, the bad debts exceeded 200 billion euros, of which almost 90 billion would be net of write-downs, or at the value of the presumable collection, recorded by the banks in the balance sheet (in 2007 it was "only" 13 billion).
Why is the Stock Exchange only now penalizing the banks?
Mediobanca wrote in recent days that only a third of bank non-performing loans could benefit from the public guarantee, ie the result of the agreement between the Italian government and the European Commission on the state guarantee to be granted on the non-performing loans sold by our banks on the market. Guarantee that the Italian State would grant at market prices and increasing over the years. The key point is that, according to this report, the state guarantee would cover no more than 65/70 billion euros of risky loans and it is not certain that all these non-performing loans will then actually be sold on the market.
1. The sale of non-performing loans would be extremely costly: banks should be prepared to book significant losses in their balance sheets, as the sale prices would be approximately those recorded by the Treasury for the risky loans of the 4 banks rescued at the end of last November, or 17,6%.
2. The "demand saturation" effect must also be taken into account. If all the banks rushed to sell their bad debts, the market demand would be insufficient to absorb the supply, causing prices to collapse, exactly the same.
the opposite of the objective of the public guarantee. This is why the market is penalizing Italian banks.
A side note. Why are non-performing loans in Italy over 19% against the average of European banks of 7%?
We know that large companies account for 80% of total credit granted to non-financial corporations, even though they are just 1% of the total. Well, in the face of so much trust, today they would be responsible for 78% of non-performing loans, while the remaining 99% of companies hold the remaining 22% of debts at risk.
Many Italian banks are victims of their system of relationships, it is no coincidence that we can speak of Relational Capitalism: in fact they have lent money to friends (and relatives…) who evidently did not deserve it.
Cross-shareholdings between entrepreneurs and credit institutions certainly do not make things easier: I imagine it is difficult for a bank, where the representative of a particular company sits on the board of directors, always has a way of preventing the latter from obtaining credit at favorable conditions compared to those of the market or even without even having the sufficient requisites.
