Back in the summer of 2016, Banca Popolare di Bari was grabbing headlines for an impending securitisation of its non-performing loans.
The deal was the first instance of a wider scheme which, it was hoped, would transfer risk away from Italy’s embattled banking sector. To sweeten the deal, investors would benefit from a government guarantee on some of the securities.
Fast-forward to 2019, and the government is much more directly involved in the bank. Bari is part of a wave of state intervention in the Italian banking sector, at a time when European powers have tried to eliminate bailouts.
The government is now set to add up to €900m, via a new state investment bank in the south of the country. That follows on from state funds supplementing Intesa’s purchase of Banca Vicenza and Veneto in 2017, and bailing out Monte dei Paschi in the same year. Earlier in 2019, the government also made clear it was willing to commit money to Banca Carige.
What are the politics behind these moves? According to economy minister Roberto Gualtieri, the Italian government “is on the side of the savers and employees of Popolare di Bari and is committed to relaunching it for the good of the economy of the south".
As was often the case elsewhere during the crisis, the primary beneficiaries of a bailout are bondholders. It is the bonds and deposits that are bailed out, and that would otherwise be bailed in. In Italy, many households own both kinds of debt. An IMF report in 2016 estimated they owned a third of the country’s €600bn of bank bonds.
Further clues as to who buys which bonds specifically can be seen in the minimum increments in which they are sold. A €200m Bari bond, for example, has a minimum investment of just six euros, implying that it is designed to be sold to retail investors. (H/T to banking guru JohannesBorgen on Twitter). The same thing was true of many of the bonds in Monte de Paschi, which was bailed out in 2017.
So, Italy is an unusual case. The post-crisis regulatory architecture, applied across many countries, was designed to transfer risk to bondholders. One reason (among many others) for this might be that bondholders, typically veiled through a series of financial intermediaries and scattered around the globe, seem like a less politically explosive cohort than taxpayers.
But it turns out that in some cases - when they’re regionally or nationally concentrated - they’re just as explosive.
Nor is the trend contained to Italy. The case of NordLB in Germany, which has also been weighed down by non-performing loans, shows a similar willingness to persist with bailouts.
As for that 2016 Bari securitisation, which matures in 2037, it was downgraded by Scope Ratings on Friday.
The role of retail investors in Italian banking woes - Financial Times
When is a bailout not a bailout - Financial Times
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