Up and Down Wall Street
Will Yellen’s Rate Plans Produce Unexpected Outcomes?
If the surprises of 2016 teach us anything, any number of unforeseen events can upend the best-laid plans.
By Randall W. Forsyth
The Manchurian Cabinet
Nina L. Khrushcheva
But the simultaneous nomination of Tillerson – the long-time CEO of ExxonMobil, America’s most powerful energy company, which has tens of billions of dollars invested in Russia – to be America’s top diplomat takes this love affair with a major adversary to a level unprecedented in US history.
For months, Trump’s presidential campaign was run by Paul Manafort, a political operative who had worked to secure the disgraced President Viktor Yanukovych’s victory in Ukraine’s 2010 presidential election. Trump severed public ties with Manafort only after Ukraine’s current democratic government revealed documents that hinted at the millions of dollars that Yanukovych had paid Manafort, in cash.
A small act of national suicide in Peru
Viva la ignorancia!
Photo: giuseppe cacace/Agence France-Presse/Getty Images
How a Monte dei Paschi Rescue Is Unlikely to Solve Italy’s Banking Problems
The industry is hamstrung by a sluggish economy and an ultratraditional business model
By Giovanni Legorano
ROME—A nationalization of troubled Banca Monte dei Paschi di Siena SpA appears increasingly likely. But a rescue of the Tuscan lender—expected as soon as next week—will do little to resolve broader woes of Italian banks.
Some are urging Rome to seize the moment to initiate a broader cleanup of a banking system that has €360 billion in bad loans and is among Europe’s least-profitable. “The problems of certain specific banks may be solved,” said Giovanni Bossi, chief executive of Banca Ifis SpA.
“But a complete overhaul of Italian banks’ business model is needed.”
But with the exception of some possible support for a clutch of small, critically ill lenders, broad sector-wide intervention is unlikely. To stay afloat, Monte dei Paschi is making a last-ditch attempt to raise €5 billion by the end of the year. To this end, it plans to launch a debt-to-equity swap and a share sale this week. according to people familiar with the situation. Both transactions are likely to last no more than a few days, the people said.
If the bank fails to raise the money it needs from private investors, the Italian government will step in and bail out the bank, a Treasury official said earlier this week.
But according to European rules, this rescue or any broader such effort to shore up the local banking system can’t happen without imposing losses on shareholders and some bondholders.
This choice is unpalatable for any government in Italy, where around €30 billion of banks’ junior, or riskier bonds, are in the hands of mom-and-pop investors.
The prospect of elections in Italy next year and a surge in populist parties ready to oppose any government attempt to help the banks leaves little chance of bold action beyond Monte dei Paschi at this stage, including by Italy’s new caretaker government. It took over after a failed constitutional referendum backed by the prime minister.
Meanwhile, a raft of policies promulgated by the last Italian government to bolster the sector have yet to gain much traction.
Italian banks face troubles on multiple fronts. An economy that is at a near standstill—Italy’s economy isn’t expected to grow by more than 1% in the coming years—and Italian banks’ ultratraditional business model offers little escape from the pain inflicted by low rates on much of Europe’s financial sector.
In Italy, most rates have remained fairly stable despite the recent rise in U.S. rates.
That stasis has squeezed the banks’ net interest margin, or the difference between what they pay on deposits and receive on loans. Fierce competition for healthy borrowers is pushing down lending rates. Meanwhile, moribund business investment is sapping an overall weak demand for loans, totals of which haven’t budged in more than two years. Italian banks have seen revenue from lending activity fall by a third from 2008, according to consultancy Prometeia SpA.
At the same time, deposit rates in Italy don’t change much, with banks paying a full percentage point on top of the one-year benchmark rate, according to Barclays.
Last year, customers at Banco Popolare SpA began receiving letters from other banks offering them loans at as little as 1% interest—effectively cutting in half the spread the banks charged to lend. Meanwhile, other rivals were offering to pay as much as 2% on deposits, a rich return for depositors who had been receiving nothing on their accounts. As a result, Banco Popolare’s net interest margin declined to 1.6%, from 1.92% over the last two years.
Banco Popolare tried to offset declining revenue from lending by pushing asset management and insurance products to customers, tapping the country’s private wealth. But while such a strategy has worked for a select few healthy lenders, it didn’t for most. Banco Popolare’s fees and commissions revenue have dropped 7% in the last two years.
“The market has been hit by a landslide,” Banco Popolare Chief Executive Pier Francesco Saviotti said this summer.
Meanwhile, costs remain high. Italian banks—which employ 350,000 people—spend 64% of their revenue on operational expenses, compared with 50% for Spanish banks and 60% for Greek banks. Costly severance packages and rigid employment contracts slow efforts to reduce banks’ costs, which are down 2% in the past year.
The result: Italian banks’ return on equity, a measure of profitability of banks, was 4.8% last year, compared with 14% for Irish banks and 8.3% for French banks.
Meanwhile, bad loans have continued to pile up, as Italy’s protracted economic problems send more companies to default. But the banks’ paper-thin profits are too little to cover the losses that write-downs would create.
That has meant that banks have been reluctant to unload the loans to investors willing to buy them at cut-rate prices. While €20 billion in sales of bad loans have occurred this year, that represented just 6% of all problematic loans.
According to the European Banking Authority, more than 16% of all loans in Italy are nonperforming, triple the EU average.
Efforts by UniCredit SpA, Italy’s largest bank and holder of more bad loans than any bank in Europe, to draw a line under its problems expose the capital shortfall Italian banks are suffering. On Tuesday, the bank—which has €77 billion in bad loans—said it would write down its worst loans by 75% and those classified as “unlikely to pay” by 40%. The bank now must raise €13 billion in part to cover the losses created by the write-downs.
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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