In recent weeks, the commitment required of the Government, the banking industry and the sector authorities to defuse the crises of MPS, the two Veneto regions and Carige has diverted attention from developments in the reform of the cooperative credit system which, for size, occupies the third position in the ranking of Italian banks.
As known, in 2016 the reform of the BCCs was launched, functional to strengthening the entire movement so as not to miss the appointment of the Banking Union. Belonging to a cooperative banking group is the condition for exercising banking activity in the form of a cooperative bank. Applications for the establishment of cooperative banking groups must be submitted by 3 May 2018. The authorization process by the ECB will start after the Asset Quality Reviews of all the components, on the outcomes of which there are concerns.
Composed of over three hundred banks, three top management bodies (Iccrea Banca, Cassa Centrale Trentina and Cassa Centrale Alto Adige) and a plethora of central collateral companies and regional structures, the new system will have the fulcrum in the three groups indicated and in a complex series of acts to ensure unity of management (cohesion contracts) and guarantees of compliance with prudential requirements (guarantee agreements).
In the table, the most significant data on his condition with reference to December 2016 (Source Banca d'Italia and Federcasse)
The critical issues of cooperative credit
There are two essential profiles of its critical issues.
The first is of an industrial nature.
Given that a 7% market share corresponds to a distribution network equal to 15% of the system and a number of employees, which represents 12% of the entire banking workforce, the characteristics of production inefficiency of the cooperative system emerge clearly, highlighting how the production cost of each unit of cooperative banking product is almost double the system average. The credit risk of the mutual banks is higher by a few points, with reference to both non-performing loans and total non-performing loans.
The very high cost-income ratio remains lower than the system, thanks to the lower percentage of coverage of anomalous loans and a higher rate spread, factors which partially absorb the weight of the structure.
The result is a better financial condition, to which the tax advantages which the cooperative system has always enjoyed have contributed. Finally, there is reason to believe that over a third of the BCCs are in conditions of individual criticality.
Starting from this situation, the formation of two cooperative banking groups (the third is required by law) can only weaken the situation, because it will require additional resources for the assets of the second group, which will also have to invest in central structures for its functioning. Furthermore, possible economies of scale will be lost from splitting in two. Investments in technology will also be doubled.
The cost of two groups could therefore not be sustainable. The certainty of this statement can only come from the relative industrial plans, which have not yet been disclosed. But the clues are all there already.
The second critical profile concerns commercial strategies, to be developed in a competitive context undergoing profound and rapid change.
The credit and savings market of households and small and medium-sized enterprises is in fact exposed to growing contestability.
Banca Intesa has doubled its presence in Veneto and Sicily, absorbing the assets of the two bankrupt Venetian banks and, like Unicredito, has set up its own territorial division some time ago. After the bailout, the MPS declared that it will set up its industrial plan aiming at the retail market, in regions with more traditional settlements.
Ubi has absorbed banks with a strong territorial vocation, once they have been relieved of the conspicuous anomalous loans (Banca Marche, Banca Etruria, Carichieti), and has already launched active policies on the new territories and so has Bper, with Cariferrara, while it is preparing to do the same Cariparma, of the Credit Agricole group, once the Casse di Risparmio di Cesena, Rimini and San Miniato were taken over. The consolidation process will make all the groups committed to integrating their strengthened local projection into their structures to make choices of decision-making centralization and organizational rationalization.
The cooperative credit reform, which will presumably be implemented no earlier than the end of 2018, will therefore find a completely different situation from the one in place at the time of its launch and the choice of the aggregation model through the cooperative banking group, which took place only in 2016.
Cooperative credit will also be exposed to internal competition, given the many territorial overlaps between the mutual banks that will join the Iccrea group or the Trentino group. The dispute to tear each other apart already splits many important regions in two, such as Lombardy, Veneto and Emilia, according to individual choices that do not seem to be made on the basis of differences of a strategic order.
It does not seem rash to speak of a dispute, without benefits for anyone, except to revive the medieval battles of the Guelphs and Ghibellines. The advantages that should derive from this bipartition should also be better explained by the Authorities.
But we would like to go on with our reflection, explaining why not even the choice of a single grouping, based on the current rules, could give sufficient guarantees of strengthening.
Suffice it to say that the reform based on the cohesion contract will maintain a complex and costly governance structure, in contrast with the rationalization action of all the other banking groups. Just think of the fact of keeping the plethoric configuration of corporate bodies (administrators, auditors, general management) almost unchanged, currently estimated at no less than 5000 positions. No other banking group, not even the largest, has a similar governance cost.
We do not know the reflections underway within the European Supervisory Authorities, but we are certain that the criterion of the sustainability of the model, in the context of the Italian market, will be an essential discriminant.
A proposal
We do not believe we are committing sacrilege if we propose to reflect, albeit in the abstract, given the reform law approved only last year by the Italian Parliament, on an alternative, which aims at a level of organizational centralization similar to that of competing Italian banks, aiming to preserve the characteristics of cooperation,
We believe that, in doing so, we can not only maintain a line of continuity with the history of the movement, but also enhance the exploitation of the competitive advantages of a capillary configuration, according to new methods.
It should open up to a new vision of the cooperative social economy, for which there is growing demand in the economy, ensuring that the system has sufficient economic stability.
It would involve conferring the assets of all the CCBs to a single bank, obtaining in exchange a proportionate shareholding in the capital. While losing the status of bank, they could extend their range of action to socio-economic purposes that are even broader than the practice of cooperative banking.
Cooperative companies would in fact continue to have roots in the territories of origin and the social bases would maintain the property rights on the cooperative's assets.
In addition to playing the role of shareholders of the Banca della Cooperazione Italiana (wouldn't that be an appropriate name?), they could develop their own autonomy, establishing autonomous policies to better assist the territories with additional services, which could be of a professional nature, i.e. health, welfare, insurance, cultural, to be addressed mainly to members, but also to other users.
As for the former, one could focus on technical assistance for economic categories, such as, for example, farmers, to help them in the choices to be made for a more rapid modernization of their activities. Think of the diffusion of new cultivation techniques (organic, precision, etc.) and of marketing (short and zero kilometer supply chains), the community practices for the acquisition of public contributions, the incentives to increase the production of alternative energies and the respect for the environment. Other examples can easily be prefigured.
As for the second type of services, it would be a question of developing those of assistance to individuals and families, contributing, subsidiarily, to a welfare that the state has increasingly difficulty in providing on its own.
Economies of scale and network among cooperatives could place these services efficiently and fairly.
Other fields of development are social and financial inclusion projects and the study of new forms of digital sociality, such as smart communities.
As regards the means necessary to make these activities possible, it could be envisaged that the buildings of the individual mutual banks remain in the ownership of the original Cooperatives which could receive the rents for the functional use of the bank's offices.
Other real or financial assets could also remain in the compendium of the spin-off cooperatives, including a part of the non-performing loans themselves, whose revenues or realizations are then added to the sources of income of dividends from participation.
The new activities of the cooperatives could also allow the absorption of part of the personnel, which will become redundant in the world of cooperative credit.
The governance of these cooperatives should be an expression of voluntary work, with costs practically reduced to symbolic recognitions.
The new Banca della Cooperazione Italiana, which could also open its capital to the market, would immediately have the size to be competitive, with a distribution network extending throughout the country, according to defined guidelines, coordinated and controlled by a centralized General Management . The best capital condition, to be used for investments of a technological nature (a single IT platform, instead of the eight existing today) and of a commercial nature with the development of new banking products and services (for example, the more capillary diffusion of payments electronics), would continue to be built on a network of over two million members/customers.
Conclusions
It must be recognized that there are no longer the conditions for the dispersion of resources, in the name of alleged differences between groups or for the preservation of costly and anachronistic forms of banking autonomy
The rules of economic efficiency are the same for everyone, while those of socio-cultural diversity, on a non-profit and solidarity basis, can be developed and in completely new ways by those who have always made it their mission. This is the advantage that cooperative credit must be able to exploit, avoiding the risk of losing the very reason for belonging to the cooperative which, always becoming more and more onerous for its own members, ends up engulfing itself.
