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The banking sector, across the world, has been
grappling with the mess created by the
global financial crisis. The European financial
institutions have recorded $1.2 tn in mark-to-market
losses, compared to the $1.6 tn losses recorded by the
US banks. European banks are feeling the heat of
the $48 bn write downs suffered by the Swiss
financial giant, Union Bank of Switzerland. It is
expected that Europe's financial-services sector will
improve only from the second half of the next year. Despite the dim outlook, Italian banks bucked the trend
and performed better in the European region than their larger continental rivals over the past 18
months. Italian banks, Intesa Sanpaolo and UniCredito Italiano, have outstripped the performance of the
big European banks, such as Barclays and BNP Paribas.
For instance, The DJ Euro Stoxx Banking index has gone down by 64% in the last 18 months,
but shares of Intesa Sanpaolo recorded a 57% fall only, and the Italy's mid-cap bank segment, Unione
di Banche Italiane, lost just 40% of its value. Italian banks have focused on traditional retail
operations and corporate lending, relying on customer deposits to fund day-to-day operations. These
factors have helped Italian banks to outperform their peers in the European Union (EU). But, given
the slowdown expected in the EU and Italy, can Italian banks continue on the same growth trajectory?
Conservatism and lack of global ambition, which were once considered as major weaknesses,
are now being applauded as good banking traits, especially after the success of the conservative
business models of the Italian banks. While their peers have been struggling to make ends meet, Italian
banks have done comparatively well. Because of their focused approach towards corporate lending
and traditional retail operations, these banks have been able to withstand the subprime crisis loss.
Low awareness and participation in securities business and relying on customer deposits to fund
day-to-day operations have also yielded positive returns for Italian banks.
Apart from their business models, the importance of larger investor confidence observed clearly
in market capitalization has fueled the growth. For example, the net income of Intesa, which was just
$8 bn in 2007 has increased to $33 bn in 2009. Arturo de Frias, an Analyst at Dresdner Kleinwort
opines, "The country's eight largest financial institutions will have an average core capital ratio, the
most widely followed measure of a bank's financial strength, of 7.11% by the end of the year. That's
roughly in line with the European average but is based on the banks' own cash reserves, not on
multibillion-dollar government recapitalization packages." The sound balance sheets, defensive business
mix, combined with adequate cash balances, have helped Italian banks to weather the current
financial storm.
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