EBA stress tests were filed a few days ago and there are only few surprises emerging from the report on the European banking sector. Italian banks, unlike the many Cassandras had predicted, have generally made a good impression, except MPS, as many people might have thought the day before, is the only one not to have passed the exam. If we were to look at the main Italian bank, Intesa SanPaolo, we would see that it is one of the steadiest institutions on the European continent, supported by a broadly positive semi-annual report that exceeds by far analysts’ consensus.
Nevertheless, starting the following Monday, a new wave of sales struck its banking shares, which pushed stock market indices downwards again, which in Milan are strongly influenced by Financials representing the most significant sector among the listed companies.
From a logical point of view, it is very strange, but understandable in such a bearish period, strongly marked by a degree of mistrust of the operators also on possible future scenarios and on the premises of weak economic growth throughout the Europe. The case of Italy is special though: national lists are subject to much more significant movements, speaking on average, compared with its foreign counterparts, more humoral you might say, both in periods of growth and decline. ‘You might be wondering why? These days, on average, have appeared two almost opposite answers to that question on the media and from a certain perspective they have a common origin, directly it the banking sector and the ABI administration.
On the one hand, the president of the Banking Association, Antonio Patuelli presents a thesis that is special to a certain degree, considering his background as a banker and former assistant secretary of the Italian Liberal Party, who points his finger at the excessive liberalism in Italy.
What does it mean? Simply that we are paying the consequences of privatization and deregulation at present. The floating funds of the companies, especially banks, would be too high, giving plenty of room to speculative movements, and that the “scourge” of short selling affects the secular uptrend and pushes prices down.
It matters little that speculative movements are more pronounced when floating funds are lower and a few exchanges can affect the market, contrary to his thesis, especially that the short positions will allow to make the system more liquid and to moderate any kind of excess, in both bullish and bearish phases. What is ruining the market in Italy is a system that is too liberal and the excess of private initiative, as if in a country where the tax burden is far above 42%, at a nominal level the state were completely disintermediated and did not weight on the economy.
A much more interesting position was the one expressed by Miro Fiordi, President of Credito Valtellinese and a member of ABI’s Executive Committee. In the Italian daily Corriere della Sera, he wrote about several issues, one of which was the short selling on the stock exchange – like Patuelli -, but expressing a very different point of view. In the interview, he answers a question on concerning their decline on banking stocks saying that “it happens because there are no long-term investors, the market is in the hands of those who play short and these situations become nice opportunities […]”. In these few words hides the bitter truth about the Italian lists.
At first glance, it might seem that the two bankers agree on the reasons of the continuous decline of the Italian banking stocks and price lists accordingly but, instead, the difference that a careful reader might grasp in the words expressed in the two interviews is abysmal. One of them explicitly points his finger at the privatizations that have deprived bank action of some kind of government guarantee and to open the market as a key sector of the economy leaving the game open for financial speculation. The other seems to be describing an immature, in a way even underdeveloped market, with plenty of large institutional investors, such as pension funds, for example, who think in the long-term perspective and do not chase short-term yield, allowing broader investment strategies.
This is a key difference in the interpretation of the facts, on the one hand, there is the idea that without state – that is to say, political – control, it is not possible to stabilize the market, on the other hand, there is the idea that over the years, various subjects from the state as a regulator and actor on the price markets through fiscal policy for the banks and fund managers, have not invested effectively in the maturation of the Italian financial market, too dependent on the Financials sector and little capitalized, perhaps for a certain kind of national mindset that does not trust equity markets and securities, preferring real investment or a short-term yield.
The latter tragedy is not mirrored only by the price lists, but also by the structure of the companies that are, on average, undercapitalized, small and heavily dependent on credit to continue not only to grow, but also merely to conceive of their own survival in a world that pushes towards an internationalization of trade and to an ever less protection of the domestic markets based on import duties and limitations.
We cannot expect to solve these critical issues calling for a greater state intervention, which results in support offered to companies through general taxation – which is already high -, but through solutions compatible with the market and with a vision of long-term growth, where the investments are oriented towards growth, not towards short-term yields, something that can only happen if we mature a financial sector which – as we should keep in mind – does not create or destroy wealth, but reallocates with maximum efficiency criteria for the investors. It is on this point that we should open a serious debate.