Betrayed by Banks, 40,000 Businesses Are in Limbo
The Most Serene Republic, as the area around Venice was known for a millennium, is now the troubled epicenter of a banking meltdown that’s threatening to derail one of globalization’s great success stories.
The base of brands like Benetton, De’Longhi, Geox and Luxottica, Veneto has also become home to as many as 40,000 small businesses suddenly stranded without access to financing since a pair of regional banks collapsed in June.
The implosions of Popolare di Vicenza and Veneto Banca, which also wiped out the life savings of many of their 200,000 shareholders, set off economic and political tremors felt from Rome to Frankfurt. Anger over what many view as lax oversight by national authorities is animating a movement for more autonomy that’s already emboldened by Catalonia’s efforts to split from Spain.
“The pain for Veneto’s banks may be over, but the pain for Veneto’s businesses is just beginning,” said Andrea Arman, a lawyer advising some of the companies and individuals who’ve been hit the hardest. “We’re just starting to see the consequences of the collapse and what we’re seeing is alarming.”
Nestled between the Alps and the Adriatic, Veneto is home to about 5 million people. Like Catalonia, it has a seafaring heritage, its own language and incomes far above the national average. Veneto President Luca Zaia, who’s called Italy and its 64 governments in 71 years a “bankrupt state,” plans to use the results of a nonbinding referendum on Oct. 22 to press Rome for more autonomy. Three out of four Veneti want more local power and 15 percent would support complete independence, according to a Demos poll published by La Repubblica this week.
While Intesa Sanpaolo SpA, Italy’s second-largest bank, paid a symbolic sum to acquire the healthiest parts of the two Veneto lenders, the state entity that’s absorbing the 18 billion euros ($21.3 billion) of troubled debt the banks amassed, called SGA, isn’t fully operational yet. That has left small and midsized companies in the lurch—in many cases unable to do business.
“Many of these borrowers are profitable companies, but they’re stuck in limbo,” said Mauro Rocchesso, head of Fidi Impresa e Turismo Veneto, a financial firm that provides collateral to companies seeking lines of credit. “They don’t have a counterparty anymore and can’t find fresh capital from a new lender because of their exposure to the two Veneto banks.”
A developer near Padua, who asked not to be identified, thought he’d solved his funding problem when he found a buyer for a commercial building along the highway linking Venice and Verona—only to be forced to halt the sale after a Veneto Banca loan tied to the property was assigned to SGA.
It’s even worse for Toni Costalunga, who at 71 still works at the machinery-parts maker he started in Schio, an industrial hub in the foothills. Costalunga, who rises at 1 a.m. and often toils well past noon, said he couldn’t pay his staff on time because his credit line was terminated “without warning or explanation” on Sept. 11, after SGA took over his Veneto Banca credit line.
“I missed a few loan payments during the worst of the recession, but I never missed a payment to a worker or supplier until last month,” Costalunga said.
Even a perfect credit score is useless in Veneto now if your only collateral is stock in either bank, which were coveted investments for generations of locals.
Agostino Bonomo, a baker in Asiago, an Alpine resort known for its cheese, said he’s doing well enough to expand but is struggling to get the loan he needs to add an oven because the 350,000 euros of Vicenza bank shares his ancestors started accumulating more than a century ago are worthless. That’s just a fraction of the 11 billion euros of wealth that’s vanished here since 2015.
“We jealously guarded those shares like you would gold bars,” said Bonomo, 60, who also chairs Veneto’s main small-business lobby. “Buying your bank’s stock was the traditional thing to do. We got it badly wrong.”
Through the depths of Italy’s double-dip recession that started with the global financial crisis almost a decade ago, Popolare di Vicenza and Veneto Banca continued to expand their corporate lending, bucking an industry trend. By the end of last year, their outstanding loans had reached 46 billion euros, about 40 percent of which were non-performing. That ratio was double the Italian average and more, even, than Siena-based Banca Monte dei Paschi di Siena had before the government stepped in to keep the world’s oldest lender afloat.
Former managers at both Veneto banks are under investigation after the European Central Bank found they urged clients to borrow more than needed in order to buy stock in the lenders, artificially boosting reserves. Regulatory filings show they loaned $3 billion for this purpose from 2013 through 2016.
“It’s a scandal,” Intesa Sanpaolo Chief Executive Officer Carlo Messina said Oct. 10, after his lender announced the creation of a 100 million-euro fund to aid low-income clients who lost everything buying bank stocks. “They betrayed the confidence of their clients.”
The expected reappointment of Bank of Italy’s governor Ignazio Visco was thrown into disarray this week by the ruling Democratic Party because of his handling of the banking crises. “There is a need to write a new page” at the central bank, former prime minister Matteo Renzi told reporters on Wednesday. “Perhaps someone can explain to us what happened as far as a lack of supervision and the problems there have been are concerned.”
Many shareholders got stung twice. After the ECB banned the banks from buying back their own shares in 2014, they offered clients who wanted to cash out low-interest loans instead. But once the value of the stock backing the credits went to zero, the interest they had to pay shot up right away.
Walter Baseggio, a 74-year old pensioner in Montebelluna, where Veneto Banca was founded in 1877, said the lender and its employees were like family for as long as he can remember. When he decided to retire in 2009, he sold his half of a car dealership and invested the proceeds in his bank’s stock without hesitation—that’s just what everyone did. It cost him 800,000 euros.
“Veneto Banca was like a mom for people living here, protecting you when needed and always fair with people,” he said over espresso in the town square.
Finance Undersecretary Pier Paolo Baretta said in an interview in Milan last month that the government is determined to keep as many Veneto companies “alive” as possible, including those with debts now held by SGA.
“We are confident that Veneto will continue to play its leading role as an engine of growth for Italy,” Baretta said.
As officials work on the legal framework that SGA needs to start operating, its managers are negotiating with national lenders including Intesa and Banca Ifis to start managing the loans, according to people familiar with the matter.
While Veneto’s multinational companies have been largely unscathed from the collapse of the lenders, the system of funding that underpinned the region’s transformation from a largely agrarian economy to a manufacturing powerhouse over the past half century will never be the same.
“The Veneto banks have been crucial for the creation and support of thousands of small companies, which are the backbone of the local economy,” said Luigi Zingales, a Padua-born professor at the University of Chicago’s Booth School of Business. “That model has now disappeared.”
— With assistance by Dan Liefgreen, John Follain, and Lorenzo Totaro