Someone abroad wishes us ill

By Alessandro Plateroti
Bankers are trembling, but speculators can sleep soundly: short sales no longer have any limits. It will in fact take at least three business days before we know who caused Italian banking and financial stocks to take a hit as well as why and with what means. This three-day period is the amount of time given to the market to transmit all transaction data to the stock market oversight authority.

Since today is Thursday, operators will have until Monday to notify Consob how they unleashed a torrent of selling of the big credit institutions such as Intesa, UniCredit, Mps or Ubi.
Then it will take several days to analyze the data, and by the middle of next week if everything goes well, we will know if investors took aim at our banks by using "short sales" for the umpteenth time. This naked short selling which in a few steps and with little risk (the shares are borrowed by third parties who are betting that the price will drop) is capable of earning speculators millions and millions and causing small investors to lose millions and millions, with only the latter risking that their accounts come up "short".

This premise is obviously not the only reply to the big question (not only since yesterday) that keeps Italian banks and their shareholders holding their breath: why are our institutions on the Stock Exchange targeted more than their foreign competitors? Is it possible that what was perceived as something virtuous and positive up to a few months ago – the low risk profile of our banks - has suddenly become an element of weakness that drives other investors towards greener pastures? Of course, the fact that our banks earn less than their competitors does not help: it is no secret that the return on equity (Roe) is 3.7% for the 8 largest Italian banks compared to an average of 6.7% for the 28 largest European competitors. However, it is also true - and the traders know it - that precisely in order to bridge this gap Italian banks are pushing as hard as they can on the para-banking market (credit cards, consumer credit), where earning margins are decidedly higher than traditional commercial banking business. This is not all. There is no credit institution that is not working today towards reducing costs, which are still effectively higher than the European average.

In short, is this sufficient to explain the lack of confidence in Italian credit institutions that the stock market is showing? This does not appear to be the case. In light of what has been happening, one always has the increasingly stronger sensation that our system is paying for faults beyond its own, in addition to its well-known structural problems. Is it possible to deny that a Country-risk which is growing faster than forecast weighs on Italian bank stocks? Could one perhaps hide the fact that the limited measures taken to balance public accounts is having a negative effect on the entire national economic, industrial and financial system?

Furthermore, stating that the large-scale selling of Italian financial stocks is due to the heavy exposure of the banks to Pigs (Portugal, Ireland, Greece, Spain) government bonds does not hold up: as at 31 March 2011, Intesa Sanpaolo had an exposure to Pigs sovereign risk equal to €1.795 billion, down to 1.596 after the Greek repayment in April. In particular, Intesa today has an exposure equal to just 591 million with Greece and just 60 million with Portugal. In Germany, the exposure of banks is decidedly higher

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