A decisive week to arrive at a turning point in the recovery process of the Italian banking system. “By now everyone has accepted the evidence that the Italian banking system is solid overall and that there is no risk of systemic crises, while it is clear that there are some well-identified cases of crisis that can be tackled with market instruments. Or, if the market fails, the government has guaranteed that it is ready to launch a public parachute to avoid the worst. And this has already changed the climate of investor confidence in our credit institutions, as can be seen from the performance of bank stocks on the Stock Exchange, even if there is still a long way to go. But the road has now been traced. Stefano Micossi, general manager of Assonime, has accumulated vast experience both of the monetary and financial system, and of the way of acting and thinking of the circles of the European Commission, where he was director of an important department years ago.
Dr. Micossi, what are the reasons why our country took much longer than the others to recognize the characteristics of the crisis of some banks, but in general the difficulty in which our financial system found itself which was forced, on a parity of other conditions, to skimp on credit to the production system?
“The story is long and complex. We certainly had a stronger economic crisis than other European countries and our production system suffered a sharp fall. However, the reasons why we have been slow to take the problems of our banking system in the right direction are essentially three. In the first place, an attempt was made to free the banks from the mass of non-performing loans (Npl) at prices corresponding to those appearing in the banks' balance sheets which are still today on average about 20% higher than those charged on the market. But now it has had to be recognized that it was not technically possible to organize such a system on a large scale. Unicredit realistically indicated the way forward: to sell the NPLs at market prices and offset the losses with a robust capital increase”.
Unicredit has also announced a heavy restructuring that involves both the sale of non-strategic assets and the closure of a significant number of branches with redundancies of several thousand people, which obviously constitutes a significant social and also political problem.
“In fact (and this is the second reason for the delays mentioned above) all the banks have taken note that recapitalizing without restructuring did not achieve the objective of true recovery and therefore all companies are trying to tackle the problem with mergers and rationalizations , as is happening in the field of Popolari, or with the reorganization of its offices and branches in order to save on costs by enhancing the most profitable services. Surely this constitutes a social problem that the government authorities must prepare with foresight and courage by clearly explaining what they want to do without fearing any temporary unpopularity".
However, the political problem does not only concern the management of possible redundancies of bank personnel. More serious and greater could be the one concerning the holders of subordinated bonds who, in the event of State intervention to support the recapitalization of banks, would have to suffer losses on the basis of the EU rules of the so-called bail-in.
“In fact, it was feared that the application of the new rules could cause both a crisis of savers' confidence in the banking system and a strong political protest against the current government. In short, this is the third reason for the delays, it was feared a mix of economic and political problems which overall could have led to an increase in the overall instability of the system. Now this fear of a general crisis of the system appears to have been overcome, while the political consequences must be managed not through continuous postponements, but by explaining that overcoming the crisis of some credit companies could benefit not only the country's productive activities as a whole, but also the same savers who had to invest in shares of banks heading towards recovery and therefore capable of making good profits again".
Naturally, the Bail-in problem arises only if there is a precautionary intervention by the State in the capital of the banks. So far the technical and political hurdles outlined above have prompted a postponement. Now there is no more time. Issues need to be addressed and the Government needs to lay down a safety net.
“Yes, we need the will to decide and the speed in adopting the necessary tools. I hope that if a decree is to be reached, the Government will have the courage to allocate a reasonable amount to make it clear to all operators that no bank is doomed to bankruptcy. We are talking about 15 billion. But then I believe that much less will be able to be used also because investors, having understood the framework within which they operate, will be able to find it convenient to make an investment at current prices, which are quite low, aiming for a recovery in value over the years to come. After all, in the USA and in Sweden, where the State intervened in the capital of the banks and then came out with a good profit”.
