“The
operating result was heavily eroded by the adjustments on credits and holdings
which affected the profit and loss account by over 2,300 billion lira...
Among them are:
- devaluation on credits
equal to over 1,100 billion lira, even after adopting more pressing internal
criteria of classification of the transfers of overdue and still credits;
- losses for transactions
and transfers equal to over 200 billion lira that include 139 billion of
losses for the unsettled transfer of real estate overdue whose par value
is equal to 420 billions to the company Morgan Stanley;
- credit writing-off for
competitive procedure equal to over 340 billion lira;
- further presumptive adjustments
equal to 200 billion lira in correspondence with the ordinary risk on credits
in bonis;
- devaluation of holding
equal to more than 330 billion lira, chiefly regarding companies working
in the real estate field”.
This short press release
was issued by the bank to inform people that the Board of Directors actually
took note that losses equal to over two thousand three hundred billion
lira had accumulated in the balance sheets!
Two thousand three hundred
is a huge figure! This loss should have pushed the Board's members to cover
their heads with ashes, take the cowl and wear wooden clogs. This is a
cash deficit which should make them feel ashamed for not having done anything
at the right time; for having given credits with a guilty superficiality
(let's rule out bad faith and favouritism); for not realising timely that
debtors were in shaky situations; for not taking the proper measures to
recover these credits; for not proposing the proper provisions in the previous
balance sheets.
Nothing was done instead.
For these gurus of the Italian financial world, everything could be explained
as follows:
“The charges depend upon
the current crisis involving the real estate field, upon a whole series
of measures that the bank took in order to better the quality of its credits”.
Sure! It is exactly like
this! “To better the quality of its credits”. One would not believe it
but it's true. Realising that there was a 2,300 billion lira cash deficit
was for them an initiative taken in order to “better the quality of the
bank's credits”.
When we read this kind of
statements, when we read these sentences in a press release issued so that
they could be reported and spread, we wonder whether the contents of that
release were true or rather some kind of nasty joke. The same Directors
as above, in fact, while commenting on the Semestral Report last September
15, 1997, (that is just a few months ago), maintained that (page 52): “The
examination of the gross value risk positions makes it possible to appreciate
the strict hedging policy carried out by the bank. The overall adjustments
of credits overdue and “still” credits accounted for 37,3% and 20,5% respectively
of their respective amounts, which are considerable levels. Thus, in September
they were underscoring the “the strict hedging policy carried out by the
bank”, as well as the “considerable levels” of the provisions. But there
is more. Page 72 of the Semestral Report indicates the “evaluation criteria”
of the credits and in particular it reports:
“The credits, both as far
as the capitals and the interests are concerned, are valued according to
their presumable salvage value that is calculated according to the debtors'
solvency situation...
To determine the presumable
salvage value, it is necessary to carry out an in-depth examination of
the outstanding debts at the end of the first six months keeping into consideration
the risk degree that marks the single uses and the ordinary risk hidden
in the 'in bonis' credit portfolio. More in detail:
- the credits overdue, or
the credits towards insolvent subjects or in a similar situation, are valued
analytically;
- the credits that are at
a standstill point, or credits towards subjects temporarily having problems,
are valued analytically;... (the words in bold type were put by us).
The Directors then claimed
they carried out an “in-depth examination of the outstanding debts at the
end of September” and the “analytical” evaluation of the credits overdue
and of those temporarily at a standstill point.
So what? Did they lie in
the Semestral Report? Hadn't the analytical evaluation been done? What
were the emergencies that between June 30 (Semestral Report) and December
31 (Balance sheet) revealed losses equal to more than 2,000 billion
lira? Did the Board of Auditors that examined the Semestral Report make
sure that the criteria indicated by the Board could actually be carried
out and were not just a mere statement?
The auditing company Arthur
Andersen S.p.A., in its Semestral Report dated 19.9.97 certified: 1) of
having audited the Semestral Report; 2) of having carried out the controls
it thought were necessary; 3) that, in its opinion, “the audit statements
and the supplementary note correctly presented the financial situation
and the economic result”. At this point we need to wait to read what Andersen
will write about the balance sheet concerning the over 2,000 billion of
losses that “suddenly” cropped up.
We bitterly have take note
of these thousands of billions wasted away (are we sure they won't grow?).
For these strange bankers
both the billions, the hundreds of billions, and the thousands of billions
are but figures reported without any zero.
They never criticise themselves;
they never feel responsible for their wrong managerial decisions; what
they do, on the other hand, is to boast of any positive thing they do even
though it did not stem from their own decisions.
If we examine the trend
of the security whose quotation almost doubled as from June 1997 (when
everybody knew that the bank's accounts in the first six months worsened
by 19% with respect to 1996), we wonder whether, after all, Umberto Agnelli
(president of IFIL and top new shareholder of San Paolo) wasn't right.
Agnelli recently claimed (Corriere della Sera, 1.3.98) that San Paolo's
“clean-up” of its accounts “was necessary” and that the “market” would
have certainly appreciated it.
We thought it was a “quip”
whereas it was a forecast that was based on the knowledge of the “system”
that certainly has its own logic but which, however, most of the common
humans fail to understand.
In these circumstances one
wonders what the amount of the security would have been if the losses were
not just 2,300 billion lira but (why not?) 4 or 5,000 billions. The
Stock Exchange would have done a very good business.
Thousands of billions wasted
away.
Mismanagers who hold the
power.
Unfortunately, there is
nothing new. Banco di Napoli set the example.
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