Droit bancaire et financier Chronique Bank Restructuring and Resolution in Italy (2015- 2016): Lessons from Recent Italian Regulatory Experiences Marco LAMANDINI1 Giuseppe LUSIGNANI2 David RAMOS MUNOZ3 ........................................................................................................................................................................................... Summary règles adoptées en Italie ; 6.- Cinquième volet : un 1.- Crises in context: a brief preamble; 2.- Act One: nouveau Fonds de solidarité et une nouvelle législa- The first banking package on significant cooperative tion établissant un programme de garantie italien banks (“banche popolari“) and their compulsory pour les prêts non productifs titrisés et imposant l’af- transformation of legal form into joint stock compa- filiation des coopératives de crédit à un groupe ; 7.- nies; 3.- Act Two: Implementation of CRD IV/CRR and Sixième volet : échec de l’augmentation de capital the new prudential framework; 4.- Act Three: Imple- de la Banca popolare di Vicenza, son redressement mentation of BRRD; 5.- Act Four: November 2015 4 grâce au Fonds Atlante italien (avec une faible banks resolution under the newly enacted Italian marge de manœuvre) et le décret-loi n° 59 du rules; 6.- Act Five: A new solidarity fund and a new 3 mai 2016 ; 8.- Et ensuite ? La première fusion entre year law establishing an Italian guarantee scheme la Banco Popolare et BPM, la saga Veneto Banca et for securitised NPLs and mandating the affiliation of certaines conclusions préliminaires sur le fantôme Italian credit unions to a group; 7.- Act Six: Banca de l’opéra. popolare di Vicenza failed capital increase, its resur- rection through an Italian Atlas (with narrow shoul- ders) and Law Decree No 59 of 3 May 2016; 8.- What 1. Crises in context: a brief preamble – Those loving next? The first merger between Banco Popolare and opera would sit comfortably in the Italian theatre of BPM, Veneto Banca saga and some preliminary con- recent banking restructuring and would be served clusions on the phantom of the opera. with all necessary ingredients for a thrilling drama: a) visible tensions between old vices and new, and sometimes ill-conceived responses, staging altogether a conflict between generations, with old incumbents Résumé very much entrenched in power but inapt to both 1.- Situations de crise dans le contexte : une brève in- adapt in a timely way to new occurrences and to an- troduction ; 2.- Premier volet : le premier ensemble ticipate necessary reforms and newcomers still quite de mesures sur les principales banques coopératives fragile to safely navigate a big storm; b) a quite perva- (“banche popolari”) et la transformation obligatoire sive sentiment of impending tragedy, with a persis- de leur forme juridique en sociétés par actions ; 3.- tent, back-stage Verdi choir singing popular despair Deuxième volet : mise en œuvre de la directive et du and disdain; c) dead banks in hope of resurrection and règlement sur les exigences de fonds propres – banks with inflated capital and on the brink of col- CRR/CRD IV – et du nouveau cadre prudentiel ; 4.- lapse in search of a last minute miracle by a (yet) un- Troisième volet : mise en œuvre de la directive sur le known saviour; d) a long series of acts punctuated by redressement et la résolution des crises bancaires forceful music with sudden accelerations (a music of (BRRD) ; 5.- Quatrième volet : novembre 2015, plans rules that Maitland would have described as scream- de résolution de 4 banques selon les nouvelles ing out of the statutory book), like in a Wagnerian tril- .............................................................................................................................................................................................................................................................................................................................................................................................................................................................. 1. Alma Mater Università degli Studi di Bologna. 2. Alma Mater Università degli Studi di Bologna. 3. Alma Mater Università degli Studi di Bologna and Universidad Carlos III de Madrid. 166 – R.L.B. 2016/3 Revue luxembourgeoise de bancassurfinance – Wolters Kluwer Chronique ogy; e) unlike the hidden secret kept by the prince in ahead of the “2008 black swan”, when markets sud- Puccini’s Turandot (whose most celebrated aria re- denly declined and then crashed. Overall, however, minds us that, for a good prince, the golden rule is to the Italian banking industry, being still centred on tra- keep any secret well locked inside) a quite surprising ditional commercial banking, was little exposed to immediate exposure of all sovereign and bank vulner- ABS and other structured financial products and ne- abilities, still revealing themselves, to markets and gotiated quite unscathed the 2007-2008 financial cri- public at large (with the media leveraging worries to sis. Things proved very different with the 2011 sover- the point of building panic), with very little indeed in eign crisis and the following long economic recession. the traditional central banks’ secretive (and fixing) ac- tion, and f) finally, the clear idea that, at the end of Indeed, these events (coupled perhaps with the in- this very Italian opera, we are going to be exhausted coming effects of an overarching and impeding tech- but probably better-off. We will follow the same ap- nological revolution) brought about, in Italy, an un- proach and sub-divide therefore our paper in a few precedented economic downturn and industrial trans- sections, reflecting the six acts of the tragedy, so far. formation, with a contraction of about 10 % of the Italian GDP and a loss of about 25 % of industrial ca- To set things in context, we must start, however, from pacity; all this in just a matter of few years. In a a necessary preamble, by asking why Italy was a late strongly deflationary scenario, consumers’ confidence comer in the club of Member States called upon to was quickly lost, unemployment (in particular among take robust action to repair the banking sector and, younger cohorts) skyrocketed, internal demand plum- nonetheless, why its case proved to be an interesting meted and real estate activities – that had fuelled one. Some economic data might help throw light on growth and production in the “go-go decade” (leaving this. a legacy of devastated environment, unreasonable land consumption and a large stock of new real estate The Italian banking system withstood the financial for sale) – virtually imploded. To be true, in the face crisis of 2007-2008 with little noise, but for one major of this quite sudden and very adverse scenario, Italian – and, unfortunately, its oldest – bank, Monte dei banks (thanks to traditionally large savings) proved at Paschi di Siena, that called for public support once it first quite resilient and acted as a powerful shock ab- became clear what a bad deal it had made with its sorber. Nonetheless, from 2011 to 2014 (the peak of extremely expensive acquisition (EUR 9 billion) of the crisis) Italian banks totalled about EUR 53 billion Banca Antonveneta from Banco Santander in the wake in negative results: the fourth worst in the euro area as of the ABN Amro affair. This deal was struck at the indicated in figure 1. top of the stock market bubble and just a few weeks Results accumulated over the years of crisis – billions of euro 2010- 2012; 2009- 20132014 2011- 2012 2011- 20142008- 2009 2008- 2009 2008- 2009 2011- 2014 0 0 -11 -11 -22 -36 -52 -58 -55 -83 IE EL ES IT DE BE NL PT AT FR Source: Speech by Giuseppe LUSIGNANI, Fact-finding inquiry into the conditions of the Italian banking and financial sys- tem and the safeguarding of savings, also with reference to supervision, crisis management and European deposit insur- ance, Senate of the Republic, 6th Standing Committee (Finance and Treasury), Rome, 27 April 2016. In the same time span Italian banks were also called leverage. This occurred in very bad times, though, fol- upon to strengthen their capital, to downsize and de- lowing the new Basel accord and the EBA and ECB Wolters Kluwer – Revue luxembourgeoise de bancassurfinance R.L.B. 2016/3 – 167 Droit bancaire et financier stress tests. Time was indeed wrong, and unfortu- From 2008 to 2014, Italian banks recapitalized for al- nately so, and this prompted bad tricks by some banks together almost EUR 40 billion. Unlike German, Eng- (in particular two of them: Banca popolare di Vicenza lish, Irish, Spanish, Greek, Dutch, Portuguese, and and Veneto Banca) in desperate need of (and search- Belgian banks (to mention only those who received ing for) fresh capital: secretive equity financing in vi- significant support during the crisis), they did so with- olation of CRR CET1 requirements was the poisoned out any state aid. And for good reasons, if only one apple. considers the size of Italian sovereign debt. State aid: fiscal impact of financial sector support over the period 2008-14 (net fiscal costs) – as % of national GDP net fiscal costs (bn €) 59 40 3 7 192341 3 53 33 104 150.5 -0.2 -1 31.1 22.3 18.9 18.2 11.2 8.0 5.3 5.2 5.1 5.0 4.6 3.7 1. 3 0.0 -0.1 Uk Italy Spain Latvia lreland France Cyprus Greece Holland Belgium Portugal Slovenia Lithuania Germany Luxembourg Source: Speech by Giuseppe LUSIGNANI, Fact-finding inquiry into the conditions of the Italian banking and financial sys- tem and the safeguarding of savings, also with reference to supervision, crisis management and European deposit insur- ance, Senate of the Republic, 6th Standing Committee (Finance and Treasury), Rome, 27 April 2016. Italian banks also improved their capital ratios of September 2015, very much in line with all major through a reduction of RWAs (about 25 %), driven by European banking systems. Without state aid, French both loan reductions and, for some banks, a wider use and German banks would display today capital ratios of internal rating-based (IRB) models. The Tier1 ratio substantially aligned with those of the Italian banks; increased from 7.2 % at the end of 2008 to 12.1 % as all other Member States would follow.