"It is not enough to put money to recapitalize them, to save the banks the impaired credit must be removed". He has his own ideas on the present and future of Italian banks Giulio Romani, general secretary of First Cisl, a union which today has about 73 registered bank members: "The General Manager of the Banca d'Italia, Salvatore Rossi, is right, who in the interview given to FIRSTonline says that streamlining the workforce is an unavoidable process, but it must be emphasized - as he himself fact – that this is only one of the steps: first we need to change the business models of Italian banks”.
Romani's recipe, which also cites the Mps case ("Despite the two recapitalizations and a cut in personnel from 30.000 to 25.000 units, we are still there: because we haven't gotten rid of the NPLs"), is clear: more consultancy and less Npl . To meet the challenges of digitization, the bank must therefore rediscover the human factor, which can be profitable and help SMEs not find themselves in the conditions they are in now. “More consultancy means less NPLs, even if a Spanish-style bad bank is needed for those”.
The Director General of the Bank of Italy, Salvatore Rossi, in theinterview given last Saturday to FIRSTonline, argued, as Prime Minister Renzi also did in Cernobbio, that the business model of banks needs to be changed, that there are too many employees and branches and that streamlining the workforce is an "inescapable process" even if "it is not the only answer ” to change: is the union ready to take up the challenge?
"Certainly. We are aware of this and especially in emergency cases we are dealing with reductions in branches and staff. However, Rossi is right to specify that this is not the only answer, after all it is a matter of numbers: impaired or stranded loans in Italy amount to approximately 300 billion, while the entire cost of personnel at national level is less than 23 billion: one realizes by oneself that even by laying off half of the total employees, or 150.000, as Renzi said in Cernobbio, only 11-12 billion would be recovered. On the other hand, too many banks would end up closing and too many families would be put in difficulty".
So what's your recipe?
“As the general manager of Bankitalia himself said, the business model needs to be reviewed. It is not only necessary to reduce costs, but also to increase revenues: banks have understood that with zero or even negative rates, credit is no longer profitable and therefore banks have increasingly focused on the sale of financial products. This has led to a shift of professionalism towards different commercial activities from the past. In practice, the credit risk assessment activity has been neglected, entrusting it to the automatic rating system. However, this type of assessment is not appropriate in times of turbulence. The rating works like an aircraft's autopilot: great for staying on course in stable weather conditions, but totally unsuitable for performing complex maneuvers or navigating through turbulence. This is why the human factor must be rediscovered, improving the ability to assess risks and offer advice, especially to SMEs. Creditworthiness must also be established on knowledge of the customer and the customer must then be well advised and accompanied by the most suitable financial solutions to support their development. Let's take startups: they are hardly financed by banks, because they don't have a history and the rating operates on statistical sequences relating to the past, therefore it does not intercept the opportunities for an innovation. If Facebook, at the beginning of its history, had been evaluated for its rating it would never have been funded. In the last 20 years, banks have not invested adequately in the professionalism associated with the granting and management of credit and have mainly focused on enhancing their ability to sell financial products. In the meantime, by renouncing a real consultative role for companies, they have not affected the atavistic habit of Italian entrepreneurship of stealing capital from their businesses. And this chapter obviously also includes that of the use of branches located in tax havens where, perhaps, money has been deposited that could have more usefully remained in support of entrepreneurial activities”.
Can good advice mean more financial solidity and therefore fewer non-performing loans?
“That's right. Moreover, today NPLs are the real emergency of the system: if action is not taken to lighten the banks of this burden, recapitalizations will continue to be nullified, as, for example, happened to the MPS. And if you continue to ask for capital on the market, it is obvious that it will only be granted in return for cost reductions. But the cuts produce short-term results, useful for speculators, not for giving companies a future without an innovation project. This is why I really appreciated Rossi's position."
But we need to cut: in what ways and at what times should it be done?
“Let's distinguish: there are cost reduction operations that must be carried out urgently and concern the banks in the greatest difficulty, such as the two Venetian cooperatives, for example. However, the costs are not only those of personnel, because those banks are examples of great waste on which one can act, before thinking about reducing jobs, starting from the remuneration and the scandalous benefits of the management groups. Another theme is that of a reorganization connected to digitalisation. I don't think that the presence of banks on the territory is destined to thin out as quickly as one would like to believe: it will take time for the entire population, even those less inclined to exploit digital innovations, to become independent. And if banks, in the meantime, were to abandon their presence in small towns, we would see a further massive transfer of savings from the banking system to the postal system. The financial culture of our country, both of families and businesses, is not such as to be able to easily give up a personal relationship. Banking is providing a service to customers that produces added value. It is quite different from simply doing finance. And, moreover, paradoxically, while automation is preached, in recent years, the number of ATMs has decreased. In any case, as far as quantities are concerned, the drastic cut suggested by Renzi is unlikely: if this were the case, in Germany they would have to reduce their staff to a quarter of the current one, given that they have 1 bank every 125 inhabitants against our 205, and a bank every 3,9 businesses against ours 12,4. Attention: continuing to reduce the quantity and quality of the Italian banking service, while we continue to invest abroad, will end up favoring the presence of foreign banks to which we will deliver our Italian customers”.
Going back to NPLs, what could be the solution according to your point of view?
“We think that a bad bank system is needed. The problem of NPLs is not confined to individual banks, but it is a globally significant problem. Then, in some cases it is a vital issue, while in others the capital structure of the bank allows it to better bear the non-performing loans on the balance sheet. But in any case they are a brake on the growth or recovery of companies. Take the case of Monte dei Paschi: since the explosion of the "derivatives case" it has made two capital increases but today it capitalizes only 700 million on the Stock Exchange. It has therefore burned over 10 billion euros, despite having reduced its workforce by as many as 5.000, from 30.000 to 25.000. The solution? The Atlante Fund has limited resources, and can support smaller realities, but if you want to solve the problem of the system you need a bad bank, simplifying, on the Spanish model, which would benefit not only the banks but the whole economy”.
That is?
“A bad bank supervised and owned by the public would not sell off non-performing loans to subjects who have an interest in obtaining a good profit margin in a very short time, but could carry out a real activity of managing non-performing loans, supporting, when possible, the debtors with repayment plans, perhaps longer, but compatible with the possibility of not bringing families and businesses to their knees. A bit like what happened with SGA, the non-performing asset management company of the old Banco di Napoli: an operation carried out over about 20 years with which over 90% of the loans were recovered”.
Do you therefore agree with the Bank of Italy which says that the first objective must be the search for "solutions that preserve financial stability in Italy and in Europe" beyond the nature of ownership of the banks in question?
"Yes I agree, that's why I say that it is not so much necessary to put money in as to remove impaired credit".
At what point is the discussion on the hottest topics with the Abi?
“We formally started a discussion, waiting for the end of summer and their annual meeting to meet operationally. There are mainly three issues on the table. The first is clearly that relating to employment, and in particular how to manage social safety nets together. Then the business models, more profitable but also more ethical, which produce profit but also more trust. The third point is precisely that of trust in the system, which must be re-launched and for this reason much stricter controls are needed so that what happened in recent years does not happen again, in which there was a lack of controls not only by Consob and Bank of Italy but even by the banks themselves. We need more independent controls, customers must be protected and helped".
