December 10, 2008

Those conservative Italian banks

Medici - aristocratic Italian family of powerful merchants and bankers who ruled Florence in the 15th centuryManagement foresight and sharper risk analysis tools, or fatter coverage ratios? No. How a lack of global ambition and substantial conservatism—namely what was previously seen as a major weaknesses—helped Italian banks outperform larger continental rivals:

[D]espite the bleak outlook, one European country has bucked the trend of multibillion-dollar writedowns and government bailouts: It's Italy, Europe's fourth-largest economy, whose banks have outperformed larger continental rivals over the past 18 months.
Don't attribute it to management foresight, sharper risk analysis tools, or fatter coverage ratios, though. Italian banks such as Intesa Sanpaolo (ISP.MI) and UniCredito Italiano (CRDI.MI) have outpaced European heavy hitters such as Barclays (BCS) and BNP Paribas (BNPP.PA) primarily due to their extremely conservative business models. The Italians steered clear of securitized assets and subprime loans, forgoing the windfall profits that boosted rivals' balance sheets in the salad days, but also avoiding the huge losses that later ensued.
Instead, Italian banks have remained squarely focused on traditional retail operations and corporate lending, relying on customer deposits to fund day-to-day operations. Even when the country's banks expanded to other countries, they moved mainly into nearby Eastern European markets that have outperformed Western European economies since the mid-1990s. "They don't make the same level of money as other European banks, but their business model certainly isn't broken," says Credit Suisse (CS) analyst Andrea Vercellone. "Italian banks didn't get into the securities business in a major way because frankly they just didn't understand it."


  1. conservative? I thick more on the lines of "provincialismo" and "parrocchialismo" . When the world economies were growing italy was l'asino di turno. Now our backward way of thinking might actually save us.
    Great article. Thanks for sharing

  2. "Every cloud has a silver lining." You are very welcome, Mango.

  3. So Italy succeeded in spite of itself?

    Hm. Italy sounds a lot like Canada. Canada's banking system is among the safest and most efficient in the world. Not the biggest profit makers but sound. Does this make Canada "backwards?" Incidentally, the charge of parochialism is attached to Canada as well.

    As for the big banks, there's nothing "forward" thinking in what the banks did to make themselves rich. I agree with the Italian outlook of "if you don't understand it, ignore it." Financial tools have become way, way to complicated for nothing.

  4. These are, in my opinion, the nicest comments I have read about this post on my page on Reddit:

    >says Credit Suisse (CS) analyst Andrea Vercellone. "Italian banks didn't get into the securities business in a major way because frankly they just didn't understand it."
    Neither did you, twit.

    >More than that. He didn't understand it, he doesn't understand it, and he doesn't understand that he didn't understand it.

    >"because frankly they just didn't understand it"
    Gee, what a concept: not investing in something you aren't familiar with.

    I thought you might find them interesting …

  5. I take it the first comment was directed to the Credit Suisse person and not you I hope.

    That last comment is prescient. Keep it simple.

  6. Otherwise it would be illogical, and consequently he would be the twit ...