It is time again to dip into the delightful country that is Italy as one of the features of life there makes the news. The saga of the national airline Alitalia has been going on for the best part of a couple of decades but has now reached something of a climax. Here is Sky News on the subject.
Shareholders in Alitalia have voted unanimously for the airline to enter administration, in a deal with the Italian government that would allow it to keep flying.
The move was approved by investors days after the airline’s staff rejected a proposed restructuring that would have seen 1,700 of them lose their jobs – with the rest subject to salary cuts of around 8%.
The business model was not viable and Etihad Airlines who own 49% of the airline were unwilling to put in any more cash without reforms. I guess the same sort of reforms which ECB ( European Central Bank) President Mario Draghi asks for at each monetary policy press conference in the one certainty in it. So the Italian state had to step up as Reuters explains.
The government appointed three commissioners to assess whether Alitalia can be restructured, either as a standalone company or through a partial or total sale, or else liquidated.
Rome also threw the airline a short-term lifeline by guaranteeing a bridge loan of 600 million euros ($655 million) for six months to see it through the bankruptcy process.
So another 600 million Euros is being added to the Italian national debt I guess as we wonder if 6 months will be long enough to get us to the other side of the upcoming election. Also there is an element to this saga that makes Alitalia sound rather like a bank.
Outraged at repeated bailouts that have cost taxpayers more than 7 billion euros over a decade, many Italians are urging the government to resist the political temptation to rush to its rescue again.
Speaking of banks
If we think of Italian banks it is hard not to wonder what is happening about the nationalisation about Monte dei Paschi di Siena? After all it was supposed to start at the beginning of the year although there were many problems as I pointed out back then as will in be a bailout or a bail in? According to Il Sole there are ch-ch-changes afoot.
According to certain estimates reviewed by Il Sole, raising the number of job cuts to 5,000 would have a €654 million effect on costs (around half a billion more than the October plan,) the equivalent of 18% of 2016’s costs. This would significantly improve the 54.5% cost/income ratio that the bank had established as a goal for 2019; now, it seems that this could be achieved by 2021.
So the number of job cuts is pretty much doubled which is being sugared by extending the plan a couple of years, or the sort of thing applied to Greece when the numbers do not add up. Also the non performing loans ( let us hope that they do not include Alitalia now ) have not been sorted as putting them in the rescue fund Atlante is so 2016.
Another decisive element, obviously, is the management of the €29 billion in gross non performing loans that still weigh on the bank: many options are being considered, but at the moment the most realistic one calls for Atlante to acquire around €500 million of a junior tranche.
Times must be hard if Atlante is the best option as views like this from Nicholas Zennaro on The Market Mogul have been replaced by write-offs and losses.
The investment in Atlante could not only generate significant profits but also create positive side effects and support a more positive perception of big banks in Italy.
Actually only yesterday Il Sole was looking at another job for Atlante.
the three banks will be recapitalized (from the Resolution Fund, then by “healthy” banks) for 450 million. The other condition was the sale of approximately 2.2 billion euros of impaired loans, to which the Atlas Fund will be charged.
They are referring to what now seems to be called Ubi Banca.
Meanwhile in something of a dizzying whirl as some banks are moved into Atlante from the state others are heading in the opposite direction. This is Il Sole via Google Translate last month on Banco Popalare and Veneto Banca.
the share in public hands will probably exceed 70% , While – as confirmed by three different sources at Il Sole 24 Ore – Quaestio’s fund ( Atlante) should be at 20-25%, leaving crumbs of crumbs on small members, already marginalized by the increases of a year ago.
Apologies for the clunky translation but I think you can all figure what happened to existing shareholders. But this looks like a game of pass the parcel with everybody hoping that the music never stops. Indeed I wonder if any real progress has been made.
The situation is fluid because regulators have not yet agreed with prices and how NPL will be disposed of and what will be the consequent erosion of the 3.9 billion of net assets currently available to banks,
This is all quite a mess as we wonder if this will be a bailout or a bail-in and what will happen to the bondholders? These are supposed to take the strain now but the fact that ordinary Italian savers were miss sold some of these bonds means that the government is twisting and turning to try to avoid that. It has created a type of paralysis which seems to be speading. What can happen to bonds well Alitalia did give us a clue?
I wonder who the holders are/were? No doubt someone is already suggesting that the ECB should buy them all……
The unemployment problem
The paralysis described above seems to lead into this as we saw yet another disappointment yesterday as follows.
In March 2017, 22.870 million persons were employed, unchanged over February 2017. Unemployed were 3.022 million, +1.4% over the previous month….. unemployment rate was 11.7%, +0.1 percentage points over the previous month,
This is supposed to be an economic recovery driven by negative interest-rates and some 1.8 trillion Euros of bond purchases and yet unemployment rises and not falls. There was better news on youth unemployment but look at the level of it.
Youth unemployment rate (aged 15-24) was 34.1%, -0.4 percentage points over February 2017
The Italian system seems ossified creating something of a zombified banking sector and indeed national airline. This means that even in a much better phase for the Euro area with economic growth just reported of 0.5% in the first quarter of this year that unemployment in Italy rises instead of falls. It represents quite a failure in the circumstances for the level of unemployment to be 29,000 higher than last year.
Yet there are areas where Italy shows excellent management skills. Allegri has taken Juventus to the Champions League semi-finals and Claudio Ranieri took little Leicester to English Premier League triumph last year. As we stand Antonio Conte’s Chelsea lead this year with 4 games to go. What of course is lacking in the banking story is the sort of decisive action that he took when switching to three at the back. The exact opposite of paralysis. If men like these were in charge then it is hard to avoid the feeling that we would see more news like that below rather than more “girlfriend in a coma” worries.
The rate of growth in manufacturing output reached the highest for six years in April, having accelerated for the third month in a row