Rescue Mission: Banks in Deep Water

As Italy seeks to recover from their recession, Prime Minister Matteo Renzi has focused his attention on how to repair the damaged banking system. With over 360 billion euros in bad loans, the Italian economy is looking for some way to re-energize the markets and create an environment that supports investment and capital projects. The Italian government made an agreement with the European Commission earlier this year, which allowed banks to bundle bad loans into securities for sale. While this allowed for some lessening of the pressure on the banking system, it was nowhere near a total solution. According to Bob Parker, a senior advisor at Credit Suisse, “The Italian banking system has been under-capitalized… and the economic impact has been negative because banks haven’t been strong enough to provide credit.”

The current solution in development: a backstop style fund named Atlante. The 5 billion euro fund will be backed by banks, insurers, and investors. To avoid violating European Union rules against providing state aid, Atlante will be privately managed by Quaestio Capital Management. The idea is that the fund will act as a buyer of last resort for banks that struggle to raise equity capital or can’t sell the riskiest of their bad debt. It is a good idea in theory. A recently released report, however, has dropped some details on Atlante that shows between 3 to 6 billion euros in existing commitments. So part of the problem, and where most of the criticisms are arising from, is that the fund is simply too small to speak to the issues it was designed to resolve. It’s akin to placing a small bandage on a gaping wound.

Since the announcement of the Atlante fund and the subsequent report on its scope and existing obligations, Italian markets have taken a hit. Intesa Sanpaolo dipped 4.1 percent, UniCredit SpA dipped 5.2 percent, and Italian Lenders have struggled on the Bloomberg Europe Banks and Financial Services Index. The question is, what will the country do in response to these recent losses given the investment in the new funds?

What further complicates matters is the question of whether or not Brexit will come to pass. If the UK leaves the European Union, the continent may yet see even greater economic woes. Last month, Banco Poplare SC and Banca Popolare di Milano Scarl merged through an all stock deal to form the third largest bank in Italy, the biggest transaction since 2007. This could be a sign of good fortune on the horizon. As Bob Parker had previously stated the banking system had not been strong enough. But with a larger infrastructure and more capital projects, Italy could be on the path to recovery. But what most leaders in the industry know is that the banking system does require a complete reboot, which will take a significant amount of time and a significant amount of investment. It is certainly not something that will happen in the country overnight.

Bibliography

Italy’s New Bank Rescue Fund Meets With Investor Skepticism

EU “Police”: No Monopolies On Our Watch

In a country that has long been in financial turmoil in the eyes of the EU, two companies in the telecommunications industry looked to create a merger that would unseat Italy’s current leader in mobile provisions.  CK Hutchison Holdings Ltd. and VimpelCom Ltd. now face an in-depth European Union probe into their plans to combine their Italian telecommunications units after the EU’s antitrust watchdog raised concerns the deal could lead to higher prices and less choice for mobile users.

Italy is not the only market in which Hutchison has received some static regarding merging of their holdings – analysis of the merger comes on top of the regulator’s ongoing review of Hutchison’s plans to combine its Three unit in the U.K. with Telefonica SA’s O2.  We are witnessing a very omnipresent EU, but concern with issues of anti-trust deflects attention from the greater issue of the struggles of the Euro.  There may be some concern that the EU is focusing on this issue among the many facing the governing body; however, cooperation has been paramount throughout the first stages of the process.

The focus of the analysis is “the extent to which the parties are close competitors, the market incentives that would be faced by the joint venture and the potential response of its competitors,” as opposed to the effect on the greater Italian economy.  They have set the tentative date of August 10 to make a decision, so until that time keep an eye on who you are getting phone service through!

Bibliography

Hutchison 3G Italy Deal Faces In-Depth Review by EU Watchdog

 

Wine in School?

In Mid-March, Italian Senator and member of the Puglia community, Dario Stefano, suggested to Parliament that Wine History and Civilization be a mandatory subject of education in Italian public schools.  Enlisting the help of wine historians, enologists, and other experts, Stefano held a press conference to unravel his plan for students to have 1 hour a week of wine education.

Citing a disconnect with a history that has been “linked to grape growing and wine,” Stefano preached that the children of Italy need to know what built their country into the largest producer of wine in the world today.  Wine is seen as an ambassador to the world for Italian people and many who travel to the country do so to partake in the rich history of wine growing and production.

He later spoke about young people and their appetite for consumption of alcohol with a lack of appreciation for its place in the Italian home for years.

“Young people around 15 years in age consume alcohol at least once a week but they do so outside the home. And their logic is that of having a good time. We need to bring wine back into our homes, into our schools, and into the core of Mediterranean culture because wine is not for getting drunk: It is the origin of our identity and our belonging. We need to bring wine back to being a beverage of the people.”

We have yet to see if his outcry was met with positivity in the Parliament, but it is a valiant cause and something that could shift something from cultural consumption to academic subject matter.

Bibliography

Italian senator proposes mandatory instruction of wine culture in public schools

Italian Tech Gets Boost from US Companies

In January, the American tech behemoth Cisco Systems announced a series of strategic commitments in Italy that will total $100 million over the next three years.  Cisco signed an agreement with the Ministry of Education, University and Research (MIUR) to teach teachers and students through the Cisco Networking Academy.

Further, Cisco has formed a investment partnership with Invitalia Ventures,  a national venture capital firm in Italy.  Together with Invitalia, Cisco has the opportunity to bolster the Italian startup scene as well as get involved with the best startups in the country.

While the news has been welcomed by the many, few are connecting this with a tax reduction that Apple has received by the Italian government for their tax bill. One of Italy’s main newspaper “Il Fatto Quotidiano” reported on December the 30th that Italian Government agreed to get from Apple €318 million instead of the €800 million that the American corporation actually owed. In this negotiation, Apple might have included the opening of the new developer center in Naples.

Unlike Apple, Cisco has not received any reported tax breaks to enter into the Italian startup ecosystem.  They have had to forage their own partnerships, like that with Invitalia Ventures, and are now seen as partners in the growth of the Italian economy.  It will be interesting to see the number of tech interviews we can secure in the country as a representation of this new growth.

Bibliography

The Italian Tech Sector Is Getting A Boost From Big U.S. Partners