Looking back then look forward.
What happened to the famous four banks subject rescue (done in a hurry to avoid the bail in ) it serves, according to my point of view to do two things.
The first: must be a lesson for the investor who is accustomed to certain standards of investment, related to the coupon “fat” and monotony ( better to have all of a thing with a bell’interesse so I do not think about it), and that will gradually accept the new logic for their savings, especially related to risk and not to yield.
second : we must ensure that what has happened does not happen again. How? I often say, first of all AWARENESS, dear readers. Each investor must be aware of what’s signing, with all that may pose to the risk and return. And then the institutions. We must do more, much more, because it is clear that WHO had to ensure not only monitored, but even allowed that certain things could happen.
On this subject, and the roles of the supervisory authorities , I found an excellent article by Lorenzo Dilena, pen “The States-General” which he described in a very concerned what he did, or rather, what did NOT ABOUT had to oversee the savings of Italians (Consob primarily with the cooperation Abi and Bank of Italy). A critical message that needs to be a starting point to prevent from happening again in the future these unpleasant situations. Although, I admit, I am always a bit ‘doubtful, considering utopian achieving the perfect balance between institutions and investors, given the obvious conflict of interest that govern the system.
After the last disaster on savings, which hit customers of Banca Marche, Etruria, and Cariferrara Carichieti , arrives on the demand for new and more stringent proclamations. The risk is that once again provide an alibi to the inertia of those who had to be vigilant, and he did. At least not with the care that is reasonable to expect in a republic that has placed the protection of savings in its Constitution.
It was 2001 when over 400 thousand Italians lost huge sums because of the crash Argentina: they had filled with bonds issued by the government of Buenos Aires. They followed cases Cirio, Parmalat and other minor products including “My Way” by MPS. And now we are again and again point.
Each scandal legislation on the placement of financial products is “improved,” but its application on time creates chasms in national savings. With the European directive Mifid , he said that would change everything. It only increased the amount of forms to sign.
In fact, profiling “to verify the customer’s request ‘ adequacy of financial products, It was reduced to a bureaucratic time’s sake. Banks have continued to place a carpet products inadequate to the needs of the investor (“mis-selling”, selling the wrong) or paid incorrectly with respect to the risk that incorporate (“mis-pricing”, erroneous assessment of the price). The absence of clear and understandable disclosure and effective monitoring rounds.
The announced parliamentary committee of inquiry, prompted by opposition and then endorsed by the government as well, will aim to clarify what happened. But you know, to know how to handle the proclamations on saving no one is guilty. And no one is innocent, hardworking add the realists of the king, so the blame would be of those who were so “reckless” to do credit to the bank. The Bank of Italy Ignazio Visco, who oversees the sound and prudent management of the banks in question, and the Consob chaired by Giuseppe Vegas, which controls the proper conduct of intermediaries, have already got their hands on. We did what we could do, says Visco. Savers have been informed of the risks, says Vegas, who feels he has a clear conscience because in the statements was a sentence on the possibility of losses in the event of liquidation or bankruptcy proceedings.
But strong doubts began to spread. After the EU commissioner for financial services Jonathan Hill, who spoke of inadequate sales, also the Minister of Economy Pier Carlo Padoan in front of the House Budget Committee, it does not exclude more than “the four banks have sold subordinated bonds to people who had risk profile is incompatible with the nature of these investment securities, but this is what should be proven by the analysis of each position. ” But we will deal with courts and prosecutors’ offices, or an ad hoc arbitration body.
The policy analysis “macro” governor deserves instead a reflection precisely in view of the investigation Parliamentary accident that the choices the regulator are always gone in the direction of less transparency to the investor, and an easing of requirements of the financial industry, or is the result of a deliberate choice?
> Take the case of the placement of the illiquid financial products. On 2 March 2009, when there was still the president Lamberto Cardia, Consob approved a Communication in which stared the rules of conduct that the distributor “must follow in dealing of illiquid financial products.” Among these are certainly the bonds sold by banks to customers. “In particular – it says – to illustrate the risk profile of complex structures, it is useful that the intermediary produces customer also the results of scenario analyzes of returns to be conducted through simulations carried out according to objective methods (ie respectful of the principle of neutrality risk). ” This methodology of international use, known as “ probability scenarios “, applied to the famous converting issued in 2009 by the People’s Bank of Milan, had put on paper at the time of placing the stock had a chance 68.4% of gain (on average) return of 59.6 euro for every 100 invested.
In the case of subordinated bonds 2013/2018 of CariChieti (ISIN IT0004923659), the probabilistic scenarios would be reported in the event the risk of losing almost 50% of the capital with a probability of 37 percent. Reading instead the hypothetical issue prospectus subject of Banca Etruria 2013-2023 (ISIN IT0004966856), the investor would have known at that time that had the 62.73% chance of getting in the media return of 54,18 euro for every 100 euro invested, 36% of take home € 113 (with a yield of 4.66% per year), and only 1.24% have a yield of 5, 49% per year. Degree of risk: very high.
We wrote hypothetical for two reasons. The first is that Consob August 5, 2009 – Vegas was not yet president – decided that the subordinated notes would be exempted from the application of probabilistic scenarios. As? Validating the interpretation she Communication of 2 March 2009 suggested by ABI, the lobby of the banks. The second reason is that in 2011, just become president, Vegas began a policy favorable to the whole financial and issuers: the watchword is to simplify, lighten. Going well beyond an orientation came up in the European Union, but in fact left free national authorities to follow the approach considered most appropriate to protect investors, Vegas gets rid of everything and makes glad the financial industry: via the probabilistic scenarios, via the indication of the average expected return on the investment and the associated probability.
In the meantime, the big race started with the placement of the bonds Subordinated from the banks, which after being lulled long by the Bank of Italy in the illusion of living in the banking system more robust in Europe, discovered the urgent need to recapitalize. A communication from the European Commission entered into force in August 2013 lays stakes on the rescue of the banks, by requiring that, before putting his hand to the public coffers (including funds interbank guarantee, if subject to public control), must affect heritage and subordinated bonds. Not only.
The European Banking Authority is well know that many of the subordinated notes already issued can no longer be counted in the equity unless replacing them with others explicitly provide explicit clauses of “ bail in ” and prepayment options not less than 5 years. The result is that subordinates will issue more complex and much more expensive. The issue is hotly being addressed on several occasions in the Abi. There are fears of “limitations of the audience of potential investors: in particular under the rules of MIFID , if confirmed the higher risk of bonds subject to bail-in , they may not be more appropriate for some retail customers, which in Italy are the main underwriters of securities. ” Obviously, the question interesting Bankitalia that wants to “fix” their own backyard first to arise.
The solution puts Abi, Bank of Italy and Consob agree , Vegas and his office did not bat an eye: padding the families of subordinates, providing something more than the ordinary bonds (senior) but less than they would require a proper remuneration of the risk taken. And still less than it would cost (in terms of power) a real capital increase. 4-5% paid by the four banks saved could not reward the risk taken by investors. But that they could not know, and most of them did not even know that he was taking a risk quasi-equity.
banking industry and regulators work together so tacitly placement subordinated notes to private customers, without paying much attention to the subtle, avoiding dealing with the offshore market . They do Banca Etruria and the other three; but also the big banks. But it is clear that the risk is greater for those institutions which have already weak capital levels.
The story does not end here. On 22 December 2014, by which time the bulk of the damage is done, Consob published a ‘Communication on the distribution of complex financial products to retail customers, “where in addition to persevere in the refusal of the methodology of probability scenarios,” explicitly advises against intermediaries to offer retail clients complex financial products specified in a list. ” And the list, who “is illustrative, not exhaustive,” coincidentally lacking its subordinated bonds. Surprisingly, six months later – June 23, 2015 – Consob provides some clarification applications, in the form of questions and answers: The subordinated bonds are complex products? “The presence of mere subordination clause if the former does not imply renewal of the bonds in question nell’alveo products in great complexity that List,” is the answer to Vegas, despite the fact that according to the ‘ Esma (the European body to coordinate the “Consob” of all EU countries), “ subordinated notes are considered complex instruments ” and recommends “ full attention to the phases of distribution of subordinated bonds to customers at retail. “
But now we’re out of time. At this point even Visco can afford a thought for savers. “Investors – states in the 2014 Final – should be aware of the risks underlying the new system of crisis management. Customers, especially those least able to correctly select the risks, will adequately informed that, in the case holds instruments other than deposits and securities, may have to contribute to the resolution of a bank. In the new context, it should examine the opportunity of initiatives aimed at reserving the purchase of riskier instruments for professionals. ” That was the last meeting of the Bank of Italy. On 26 May 2015. Just a few months ago. And yesterday, in an interview with Corriere della Sera, the chief executive of the Bank of Italy Salvatore Rossi he has had the courage to declare that the request was made “in very difficult times.” May 26, 2015. Banca Etruria had been commissioner only three months before.
A long season of regulatory decisions increasingly pro-business and pro-ever investor and a laxity of controls made in the field continue to dig pits in national savings.
An article that sounds like strong act of protest against the system and that is, in my opinion, an interesting point of view that embittered critic on one side, but that should shake up the system to prevent, in the future, there is another savings betrayed massive (massive because small scams, ones, will never disappear …)
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