The market dogmatists and the petrified forest of banks

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The spectacle offered by the Italian banking sector in recent months has given observers much food for thought on a myriad of topics. The game of risk has brought power struggles, personal conflicts, alternative approaches, unexpected betrayals, and unexpected alliances to center stage. But one of the most popular topics in recent months regarding banking has concerned the alleged improper relations between the worlds of politics and finance . The charge leveled by pure free-market theorists is this: when politics interferes in a market, the market usually suffers negative consequences. The theory is straightforward and understandable, but the spectacle offered by the banking sector in recent months has provided numerous elements for asking a few questions about this absolute dogma: does politics that takes an interest in the market, and to some extent interferes with its initiatives, always have negative effects? The spectacle offered by the banking sector in recent months seems to be there, before our eyes, to offer alternative, and surprising, answers. The premise is essential: it cannot be denied that the government, in the midst of the banking crisis, wanted to take action . It did so on several occasions. First, when, through Monte dei Paschi di Siena, 11% owned by the Ministry of the Economy and Finance, 9% by Milleri's Delfin (the Luxottica heirs), and 5% by Caltagirone, it chose to pursue a bid to acquire BPM. The second move, supported and endorsed by politicians, occurred when MPS's bid for BPM was swept away by UniCredit's intervention , which launched a takeover bid for BPM itself. The third move, supported by politicians, occurred when, in an attempt to keep UniCredit away from BPM , it imposed very strict restrictions on the operation through an unscrupulous use of the Golden Power. The fourth move occurred in January when MPS, seeing the BPM option fade, shifted its focus to Mediobanca , to the delight of MPS shareholders, especially Milleri and Caltagirone. The outcome of the Mediobanca takeover bid will be known on September 8th, although a positive outcome is now a foregone conclusion. The fifth move occurred when the government informally threatened to use its Golden Power with respect to a highly contested decision by Generali's management, the Natixis deal , motivated by the desire to protect Italian savings. This move effectively put the deal on hold. The government's activism was real, it was open to the public, but it had repercussions that could not fail to shock even free-market dogmatists. MPS's move on BPM exposed Unicredit, whose move exposed Crédit Agricole. MPS's subsequent move on Mediobanca helped expose the fragility of the power structure in Piazzetta Cuccia, which prompted Mediobanca's CEO to belatedly seek a way to give the investment bank a future through the deal with Banca Generali, which was rejected at the shareholders' meeting two days ago.

And if on September 7th, the Monte dei Paschi's takeover bid—prompted by the Ministry of the Economy and Finance—is approved by the Mediobanca shareholders' meeting, the Mediobanca of the future would have a new structure in which the market would matter a little more, in which shares would be counted and not just weighed, and in which the mechanism of shareholders' agreements through which Mediobanca has been governed for years by a blocking minority would be dismantled. (And the fact that the Mediobanca of the future would be led by a company, Delfin, headed by one of the champions of global capitalism, namely the head of Luxottica, should put into perspective the idea that the Mediobanca operation is an operation driven by the powers that be in Rome.) In the year of the banking game, the government had a hand in it (and even the government's decision regarding the board of directors' list could have had a distorting effect on Generali), but the surprising fact to reckon with is that the relationship between banks and politics in recent months has produced more positive than negative results. First, it has helped shake up the petrified forest of the Italian banking system, and the number of transactions recorded in recent months (and to the more well-known transactions we must also add Bper, which completed the acquisition of Popolare di Sondrio, and Banca Ifis, which completed the Illimity deal) has tangibly enlivened the financial world, as demonstrated by a number that even market dogmatists cannot deny: the growth of bank stocks on the stock exchange. Over the last six months, the FTSE Italia All-Share Banks index has gained between 31% and 32%, while the broader FTSE Italia All-Share index has only gained 12%. In Germany, the DAX index (which also includes the banking sector) has only risen about 10 percent in the last six months. Politics, for better or worse, has had a significant impact on the Italian banking system's dynamism. But another political factor has also had a positive impact on banks. Over the last twelve months, the BTP-Bund spread has fallen from 140-150 basis points to below 100 basis points . This reduction, also the result of political responsibility and prudence regarding public debt, has had a tangible impact on bank balance sheets, many of which are burdened by significant investments in BTPs. Unicredit has gained over €400 million in capital, Banco BPM around €50 million, Intesa between €40 and €50 million, and MPS around €10 million. These aren't immediate profits, but rather capital gains. And here too, politics has played a role in making Italian banks more solid (although politicians in recent years have often demagogically attempted to make banks pay for so-called excess profits, unsuccessfully, partly because banks already have a different and more severe corporate income tax regime than other Italian companies). To all this, we could add the fact that politics has produced another positive result by addressing banks in another context as well. And it cannot be overlooked that at the center of these risk games is a bank (MPS), which the state has rehabilitated by gradually putting it back on the market. Today, MPS can afford to think bigger, thanks in part to the virtuous way in which MPS's main shareholder (the Ministry of the Economy and Finance) has made the bank sounder (the capital increase in October 2022 was carried out at two euros; today, an MPS share is worth 8.2 euros). Not all of the actions undertaken by politicians in the banking world have produced virtuous results. But even market dogmatists, faced with the great novel of banking risk, should ask themselves whether politics—whose actions, however unscrupulous, are always subject to market scrutiny—has played a role in stimulating the dynamism of the banking and insurance sectors. The answers could be surprising. Long live the summer of risk.

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