Bankers are never the most popular of people. But in Italy at the moment they rank somewhere below politicians and traffic wardens in the publics esteem, with their collective nose perhaps just in front of drug-pushers.
Everyone who lives here knows the nations banks dont exactly offer ordinary customers a diamond-studded service. Charges even when your account is in credit, long queues, inconvenient opening times, surly staff and bureaucratic procedures are some of the most common bugbears.
But a string of recent scandals has raised suspicions that Italys banks are not just crummy, they may be corrupt too. Top of the list of troubles for the sector is the question of how heavily implicated it is in the Parmalat scandal.
The Parmalat affair, one of the biggest frauds in recent European history, erupted in December when the dairy giant was forced to seek bankruptcy protection from creditors after admitting it overstated assets declared in its accounts. Parmalat had allegedly used related offshore firms to hide a multi-billion-euro hole in its accounts. Subsequent investigations suggest the overstatement could exceed 11 billion, although the precise figure is still unknown. This was dramatic news for thousands of Italian small investors who bought over a quarter of Parmalats bonds (1.9 billion out of a total of 7 billion) issued since 1997.
Two Italian banks Banca Popolare di Lodi and Nextra, the fund manager of Banca Intesa, Italys largest bank are under investigation. So are five foreign ones Bank of America, Citigroup, Deutsche Bank, Morgan Stanley and UBS. Prosecutors are trying to work out whether the institutions knew there were irregularities in Parmalats finances and helped the firm to issue bonds on which it was likely to default.
The Italian banks defence is that they knew nothing and, like the investors, were duped by Parmalats book-cooking. They are also stressing that foreign banks are perhaps even more entangled in the affair than they are. The greyest cloud hangs over the Frankfurt-based institution, Deutsche Bank. According to reports in the Italian press, Deutsche Bank reduced its holding of Parmalats capital from 5.2 per cent to 1.6 per cent shortly before the scandal exploded. This doesnt leave the Italian banks in the clear, but are they the affairs victims or villains, or a bit of both?
Even if Italys banks were foxed by creative accounting, one big question remains: why didnt they smell a rat? This is something ordinary Italians, who are asked to provide truckloads of documents and guarantees to secure even the smallest loans, are particularly curious to find out. Many investors feel that if the banks are innocent of fraud, they are guilty of gross incompetence. The impression is that banks use the savings of small investors to play fast and loose with corporate clients, and then make ordinary mortals sweat their socks off for a few grand to start a business or buy a car.
Even before Parmalat the banks were under a barrage of fire over the sale of bonds issued by Argentinas government and food giant Cirio. Both defaulted two years ago. The Cirio case has also led to a criminal probe, involving Italys fourth-largest bank, Capitalia. Capitalia chairman Cesare Geronzi is being investigated over allegations his bank tried to shift its rotten Cirio debts onto savers by, once again, helping the firm dish out dodgy bonds. Capitalia is one of a number of banks that has now set funds aside to compensate clients in the face of an outcry from savers whove lost money.
Whats more, it seems that the Parmalat and Cirio affairs are somewhat entwined. Capitalia is involved in both, as it managed Cirio bonds and lent money to Parmalat too. Furthermore, Cirios former owner Sergio Cragnotti, who also ran the Rome football club Lazio, had a number of dealings with Parmalats founder Calisto Tanzi, who had a premiere league football side of his own, Parma. A number of players moved between the two teams and in 1999 Parmalat bought a milk firm belonging to Cirio. The waters get even muddier here, as there are reports Tanzi has told prosecutors that Geronzi pressed him into buying the milk firm from Cragnotti at an inflated price.
Italys central bank has also been taking flak for not monitoring the situation better. To thicken the plot further, in February Bank of Italy governor, Antonio Fazio, was put under investigation about allegedly fraudulent investment plans by another Italian financial institution, Banca 121. Some 100,000 people are estimated to have invested around 3 billion in Banca 121 at the end of the 1990s, many losing as much as 65 per cent of their money. Fazio is being investigated for facilitating fraud by failing to ensure adequate inspections.
Its a fine muddle. The government now has the task of introducing reforms that ensure such scandals dont happen again. But as well as tightening the reign on fly business practices, the politicians should also make sure Italys banks are more attentive to the needs of small investors and borrowers.