#Savethedate NPL Call 3 aprile

A 360° conversation on Covid-19 impact on current status and reasonable perspectives of Credit Management Industry, NPL Market and broad banking industry with Giovanni Bossi and myself. #SavetheDate April 3rd 12 pm Italian time.

Join the call with this link

You can also join the call using +39 02 8732 3415 e digita il PIN: 875 304 081# additional dial in number at this link

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Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

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Hard times for Italian Banks

In the mid-1990s Bill Gates declared

“banking is necessary, banks are not”

Today disruption process promoted by fintech companies can be seen as the coup de grace to weakened traditional banks that over the years have struggled to compete with non-banking financial intermediaries specialized in specific products , such as companies that grant personal loans and/or issue credit cards.

Most recently European banks have been unable to repay their cost of capital, hit by tougher rules after the global financial crisis and the European Central Bank’s ultra-loose monetary policy which makes lending unprofitable.

Bankers in the euro zone say they need to bulk up to compete with U.S. rivals but diverging regulation across different countries hamper cross-border mergers.  A softer stance toward tie-ups could be one the response coming from regulatory authorities as the sector struggles to make money against backdrop of low rates.


Intesa Sanpaolo and Unicredit the 2 largest italian banks (the second one is the only Global Systemically Important Institution) have chosen two very different approach to face this situation.

Unicredit has planned to continue the consolidation process started with the Transform 2019 with the new Team 2023 business plan based on:

  • Growth of the franchise by reinforcing leadership as the “go-to” bank for European SMEs, leveraging growth engines in CEE and CIB, and expanding the client base of individuals through improved distribution and service models, while enhancing customer experience
  • Further strengthen monitoring and management of credit and financial risk, and targeted actions on compliance and operational risk with Non Core rundown by end 2021 confirmed, with Non Core NPEs below €9bn by end 2019 and below €5bn by end 2020
  • Proactive capital allocation, gradual alignment of domestic sovereign bond portfolios and evolution of Group structure, including working on a project to create a subholding, incorporated in Italy and not listed, for international operations

Intesa Sanpaolo recently launched a Voluntary Public Exchange Offer for all UBI Banca Ordinary Shares aimed at building a a European Leader to Enhance Value Creation through a Stronger Italian Footprint

Apart from the abstract speeches about amazing synergies and similar company cultures, the plan is based on 3 pillars :

  • Exploit the difference between “strong” Intesa stock value (price/tangible asset ratio close to 1) and UBI Weak one (price/tangible asset ratio below 50%) offering 1.7 newly issued shares for every UBI share
  • Sell in cash about 400 / 500 branches of the aggregated entity to BPER and some insurance activities to the UnipolSai Group
  • Use the negative Goodwill to cover integration costs and increase loan loss provisions to accelerate de-risking.

Although Intesa Sanpaolo may be strengthened by the acquisition of UBI, critical issues arising from the structural decline in profitability and the progressive reduction in workers’ need in traditional banking remain on the horizon and will necessarily have to be addressed in near future.

In addition to general issues faced by global and European banks Italian ones need to deal with:

  • hypertrophy of the workforce derived from the historical role of social safety net that banks played in Italy not to mention political party interference
  • technological gap and structural inefficiency resulting from a status as a semi-public entities and from prolonged protection from international competition granted by a vigilance that has favoured stability over efficiency
  • credit quality worse than the European average despite significant efforts in recent years to reduce the stock of non-performing loans
  • little or no economic growth and stagnant productivity of the home country system and poorly meritocratic corporate culture that privileges loyalty over merit

The future of Italian Banks will see fewer administrative employees, whose duties will be limited to the supervision and monitoring of activities carried out by IT procedures. fewer front office operators and more consultants and customer relationship managers that will deal with clients through through different communication channels such as email, telephone, videoconferencing in addition to the traditional physical presence. In this scenario it is quite plausible an increase in the relative number of independent and flexible workers (free lance, contractors, agents), compared to full-time employees.

Provided that it is easy to support a over the phone, but while is much more complicated to make a remote surgery (but also haircut) , this underlying trend will probably affect some sectors (education, publishing, communication, financial services, consulting) more than others (medicine, personal care, construction, logistics). We can face the wave by trying to ride it and prepare in time to face the changes that we cannot affect, or we can ignore it and pay the consequences in the future.

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

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Italian banks and NPL Update 2020-0

Intesa Sanpaolo kicked off long-awaited consolidation among Italian banks with a surprise 4.86 billion euro ($5.3 billion) takeover bid for smaller rival UBI Banca. (my article in Italian).

This seem to be quite the opposite strategy of Unicredit that is aiming at gaining efficiency before seeking growth that may result in additional risk and capital increase requirement.(my article in Italian)

The move of Intesa Sanpaolo appears to be in line with the revised approach of European Central Bank  that recently softer its stance toward tie-ups as the sector struggles to make money against backdrop of low rates.

Cerved granted a period of exclusivity to Intrum Italy for the negotiation of the potential sale of the Credit Management division, which deals with the management and recovery of receivables. The decision falls within the context of a “process aimed at deepening the hypothesis of enhancement of Credit Management”. Last September, Cerved had given a mandate to Mediobanca for the “exploratory evaluation of strategic options” (read the press release)

According the last Banca IFIS NPL Market Watch reduction in NPE stock is continuing in Italy and the next hotspot is expected to be the UTP segment

Even though NPE are leaving banks’balance sheets the workload for credit management industry appear to be increased rather than reduced

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

Parole Povere

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Very Successful Panel on NPL and Bank Fraud

Saturday 15th Feb 2020 I had the pleasure and the honor to attend a panel on “NPL e Frodi Bancarie” sharing the desk with Gianluca Codagnone, Managing Director at Fidentiis, Giovanni Bossi, Founder of Cherry NPL and -Head Clessidra Restructuring Fund and Gianni Mion, Former president of Banca Popolare di Vicenza.

The panel was part of the 3rd Liberi Oltre le Illusioni live event a 2 days convention includingi 12 panels and a morning assembly chiared by Elsa Fornero, labour economist and former labour ministry of Italian Government.

Immagine

The has started with a brief introduction of Italian market and key info and a short recap of most relevant facts in NPL marker during recent years.

The discussion has continued with a an insightful analysis of main trends and drivers of distressed market, including interaction between regulation and market players.

The complete video of the panel is available on Youtube.

Liberi oltre le illusioni is a Youtube Channel aimed at provide independent and fair information regarding Italian Politics and Economics and is a brend created by non profit Foundation Fondazione iCinquecento.

Link to Youtube Channel

Link to Facebook Page

Opencollective

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

Parole Povere

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#Savethedate NPL e UTP Forum – Palazzo Mezzanotte 5th March 2020

Proud to be speaking at the next edition of NPL & UTP Forum on March 5th 2020 at Palazzo Mezzanotte, Milan. This year focus will be on The new UTP wave

To read the full agenda and subscribe see the event page

Featured Speakers inlcude:

The program includes keynote speeches and panels as detailed below

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

Linkedin

GLG – Gerson Lehrman Group – Council Member

Parole Povere

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Will ECB become less demanding on Banks’ M&A?

The European Central Bank (ECB) published the outcomes of its 2019 Supervisory Review and Evaluation Process (SREP). While capital requirements in 2019 remain unchanged from 2018, at 10.6%, some significant concerns remain regarding business models’ sustainability, with low profitability as the most critical issue and decreasing quality in internal governance.

As reported in advance by Wall Street Journal a softer stance toward tie-ups could be one the resmpones coming from reuglatory authorities as the sector struggles to make money against backdrop of low rates.

SSM under Danielle Nouy used to require capital increases before allowing mergers (e.g. Banca Popolare di Milano and Banco Popolare in Italy) and this affected the convenience of these deals. Andrea Enria’s new course it seem that this approach may change as the case of Unicaja + Liberbank potential merger seem to prove.

Mr. Enria also acknowledged relevant achievement in NPL Reduction since banks with high levels of non-performing loans (NPLs) are broadly meeting the targets for cleaning their balance sheets.

When the ECB assumed its supervisory responsibilities five years ago, the volume of NPLs held by significant institutions stood at around €1 trillion (an NPL ratio of 8%). By the end of September 2019, it had been reduced to €543 billion (an NPL ratio of 3.4%).

 These banks are recommended to keep a strong focus on continuing to improve their credit risk profiles.

  • Banks with higher levels of NPLs are expected to have three-year reduction strategies in place for NPAs (non-performing loans and foreclosed assets[3]).
  • The following represents the actual existing stock of non-performing assets for year-end 2018 for 32 high-NPL banks[4]. The 2019-21 bar charts represent the banks’ own projected level of volume reduction of NPAs over the period end-2019 to end-2021.

  • As part of the NPL reduction strategies, banks are expected to forecast the reduction of NPLs by portfolio, reduction option and vintage bucket.
  • Based on the following chart, the banks are projecting a reduction in volume of very old NPL vintages over the period 2019-21. Vintages of two-five years are projected by banks to remain constant and there is a projected increase in the relative share of unlikely to pay loans.

Bottom on SREP 2019 :

  • SREP CET1 requirements and guidance (excluding systemic buffers and countercyclical buffer) for the 2019 cycle are stable overall at around 10.6% compared to the 2018 cycle.
  • Business model remains a key supervisory focus with supervisors highlighting banks’ business model sustainability as a key risk area of the SREP 2019.
  • Governance remains a risk area of particular supervisory concern due to deteriorating scores driven by limited effectiveness of management bodies, weaknesses in internal controls, poor data aggregation capabilities and weak outsourcing arrangements.
  • When the ECB assumed its supervisory responsibilities five years ago, it stood at around €1 trillion (8% NPL ratio). By the end of September 2019, the volume of non-performing loans held by significant institutions had been reduced to €543 billion (3.4% NPL ratio).
  • Operational risk driven by specific one off losses and increased IT/cyber risk for a number of significant institutions represents a key area of ongoing focus for supervisors.
  • Overall, the two key risk management processes for capital and liquidity – ICAAPs and ILAAPs – show significant need for improvements, also in light of their role in the SREP which will increase in the future.

Link to ECB Press Release

Link to  Aggregate SREP outcome for 2019

Link to Pillar 2 Requirement

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

Parole Povere

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The Wise Guys Democracy

Modern societies are quite complex and it is virtually impossible for anyone to be completely and correctly informed on what is going on. Even assuming the access to a complete and correct set information (no fake or misleading news), understanding such a complexity requires a remarkable effort in terms of time deployed not to mention skills and abilities needed to achieve a full comprehension.

This has a relevant consequence for democratic process: we select candidates at political and administrative elections without fully understanding the consequences of our choice.

This phenomenon amplifies at least 3 common flaws of modern democracies:

1-The ability of lobbies and any other minorities with shared interests to promote policies aimed at obtaining gains for themselves at expense of the others because the less voters know and understand, the easier is to approve rules that can harm them.

2-The preference for policies with short term benefits over those with immediate costs and greater long term benefits because the balance between present costs and future gains requires time and education to be correctly assessed

3-The electoral competition based on emotional narratives and irrational beliefs rather than on pragmatic discussion of real problems because wrongly informed an poorly educated voters are the most likely target for political strategies based on emotion and ideology

How can all these problems be mitigated by social media technology?
The mechanism of social networks has proved to be quite effective for sharing information with a large number of people and to manage the individual reputation of community members.


This mean that the burden of fact checking activity and convenience assessment of public policy proposals could be conveniently split among a large number of individuals rather than carried out by a single institution and that reliability and independence of the analysis could be guaranteed by a peer review mechanism.

Assume to have a mass collaboration system similar to wikipedia with 2 main goals: 1) verify news and debunk fakes 2) perform a convenience analysis of political programs and proposals. Than imagine that this mechanism is part of a wider social network similar to Twitter so that content produced are user friendly and easy to share. Assume also to have a set of rules that grant reliability of content produced, minimization of noise and consistency of the network. Finally assume to have a compensation scheme that collects donations by users satisfied by the content found on the network and distribute rewards to those who produce them.

We may call this very peculiar social network “The Wise Guys Democracy” anddesign it for a large number of basic users that we may call “Citizens” and a limited number of “Wise Guys”. The system is based on 3 main rules:

Rule 1only wise guys can produce and edit contents (citizens can file questions and answering citizens questions is supposed to be the main driver of content production by wise guys)

Rule 2: the “wise guy” status is based on a reputation score determined by feedback received by other wise guys (administrators of the system creates the first wise guys and are supposed to monitor contents and user activity)

Rule 3: wise guys receive a reward for their activity financed with donations collected by other users (this is aimed to create a stronger incentive to wise guys )

Strong Lobbyists with deep pockets can hardly be defeated by a non profit initiative aimed at promote transparency and it would be naive to think otherwise. Nevertheless if a precise and independent assessment of any new policy proposal were available in a user friendly format it would be easier for the public to be aware of the consequences of their political choices and it would be harder for lobbyists to charge the public with unnecessary burdens.

The final target is not to have people make always the best decisions (it would be questionable how to determine what the best decision is) but to avoid as often as possible the worst ones.

The Wise Guys Democracy is a concept idea for a non profit and open source project aimed at improve transparency in political system and enhance awareness of voters regarding their choices. A more detailed description of how the project is designed will be provided in a separate post.

Originally published on Medium

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

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