Bank collapse and personal ruin in Italy
The effects of the financial crisis are far from over in Italy where a scandal over an old man who killed himself after losing all his savings could yet bring down the government
Luigino D'Angelo was 68 when he died. What we know about him is that he was a retired worker at the electricity board, happily married to Lidia for 51 years and was, or at least had been, reasonably well off.
He hanged himself in his small house in Civitavecchia, not far from Rome, after losing his life savings in a bank collapse. It seems hardly possible in this day and age, in an OECD country. What everyone in Italy is asking is: 'Who is really to blame for Luigino's death?'
Some are blaming a piece of legislation ironically entitled 'Salvabanche', Save the Banks. What happened was this. After the financial crisis, when banks were caught in a credit squeeze, many countries, Britain in particular, bailed out their banks with taxpayers' cash and nearly went bust doing so.
It was clear that the creditworthiness of banks and countries were going to have to be separated, and the EU issued a directive to the effect that banks should not be rescued on the taxpayer's tab.
Italy's banks survived the crash, but there are still far too many of them, several are too small and some are in lamentable financial condition.
Fearing new, even more difficult, European legislation was imminent, the Government decided to act quickly. It took steps to save four banks: the savings banks (casse di risparmio) of Ferrara and of Chieti, Banca Marche and Banca Etruria, where Luigino kept his money. The good bits of the banks will probably be sold to one or other of the larger, national banks, whilst the poor lending decisions have been piled into a Bad Bank.
So far, so good. The individual depositors are bailed out by the permitted bailout fund, which Europe-wide amounts to €100,000 per person per bank. Above that, you are deemed either a professional investor or possibly rich enough already.
It is worth reminding readers that if you have €500,000 on deposit you need five banks in order to be 100 percent safe. The other category of unrescued depositors comprised those who had invested in something other than the traditional current or deposit account. They are also deemed to be professional investors.
And this, incredibly, is where Luigino D'Angelo came unstuck. In the well known financial centre of Civitavecchia, where Sofia Loren was born, this simple man was sold a €110,000 bond of subordinated debt, ranking behind ordinary depositors.
The sum amounted to almost his entire life savings. Of course it paid a better rate of interest. This is an instrument which, in my experience, few professionals would fully understand. The document he signed ran to 60 pages. Whilst the questionnaire to determine his suitability described the product as low risk, continually in the pages of the actual contract it referred to high risk.
So who is to blame for Luigino's death?
Well, everyone knows the financial climate is not good. But the European Banking Regulator can be criticised for raising banks' capital requirements in a classic case of locking the stable door after the horse had bolted.
It meant that in the struggle to clean up bank balance sheets there was no room left for new lending to draw the economies of Europe out of recession, and that banks such as Banca Etruria had frantic annual fundraising crises. The local manager had been given a budget of how much of this risky issue he had to raise from his customers.
The Bank of Italy, to its credit, had recommended that this type of instrument not be sold from retail branches. It was ignored. But it is guilty of years of mismanagement of the banking industry, keeping efficient foreign investors out, resulting in small, poor quality banks.
But the clear culprit is the banks' management. There may well have been malpractice in the banks' failure in the first place. Furthermore it is clear that Luigino D'Angelo will have understood neither the nature of the instrument he bought nor the risk profile of the bank he was punting his retirement on. He should not have been sold this stuff, even if he had begged for it.
Luigino might have been content to learn that his suicide has caused an enormous headache for the Government. It is thought that there are upwards of 10,000 private individuals who are subordinated bondholders of the four banks. Many, if not all, will have been missold the product, and people across the political spectrum believe the losers have a moral right to their money back.
Suddenly a Save the Savers decree is being passed, offering a limited sum to help needy cases. It is probably not enough but the EU may not permit much more.
Then there is the conduct of the directors of the banks. The father of a senior member of the Government, Maria Elena Boschi, was Vice President of Banca Etruria and we shall find a fair number of the regional great and good are involved.
The Government must investigate rigorously and impartially the collapse of the four banks and prosecute where possible irrespective of who goes down.
Feelings in the country are running high. It might be enough to bring Renzi down if he doesn't move quickly.
Tim Hedges, The Commentator's Italy Correspondent, had a career in corporate finance before moving to Rome where he works as a freelance writer, novelist, and farmer. You can read more of his articles about Italy here
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