Libya Buys Italy As Colonialism Moves Into Reverse Gear

Well taking my cue from the worthy and well thumbed play-book of the Brothers Coen, I thought I’d follow up on my long and indigestibly serious analysis of the plight of the Hungarian economy, with something in rather lighter vein. The Miss Iceland Look-alike show is not the only talent contest we are going to get to see over the coming weeks and months it seems. We are also apparently on the verge of watching a much more macho “Man-City/Emirates Stadium” look-alike one, since news today informs us that Libya at this very moment in the process of bailing out Italy’s much troubled banking system.

UniCredit SpA surged after Libyan investors including its central bank boosted their stake in Italy’s biggest bank and said they will invest more. The shares gained as much as 12 percent to 2.42 euros in Milan, valuing the bank at 32.2 billion euros ($42.4 billion). Libya’s investment is “good,” UniCredit Chief Executive Officer Alessandro Profumo told reporters in Milan. “It’s a confirmation of their interest in our company, which they also consider to be very attractive.”

The investment may be worth much as 1.3 billion euros, according to a note by Centrosim analyst Marco Sallustio published this morning. It could allow Libya to obtain a seat on the bank’s board. Central Bank of Libya, Libyan Investment Authority and Libyan Foreign Bank bought shares to boost their holding to 4.2 percent, the investors said in a statement late yesterday. They intend to buy as much as 500 million euros of securities that UniCredit plans to sell over coming months.

But of course, where do you think the greatest risk to the viability of Italy’s Unicredit lies? And what do think is the the principal reason why the country and its banking system need this sudden Libyan support? Well you might try looking “over there”, you know, where they are holding the Miss Iceland look-alike contest.

Here, courtesy of Reuters, are some basic facts about Unicredit:

– – UniCredit is one of Europe’s top 10 banks by market value, with a capitalisation of about $39 billion. It is second to Intesa Sanpaolo SpA among Italian banks.

— In a U-turn on Oct. 5 it announced plans to boost capital by 6.6 billion euros. It will ask investors for 3 billion euros in a capital increase and offer shares rather than a cash payout on 2008 results, putting 3.6 billion euros instead in its own coffers.

— UniCredit on the same day boosted its target for Core Tier I to 6.7 percent at the end of 2008 based on Basel II requirements from its previous aim of 6.2 percent. The figure was 5.7 percent at the end of June.

— It also slashed earnings per share forecasts for this year to 39 euro cents from around 52 euro cents previously.

— It is the Italian bank with the most foreign exposure. UniCredit gets about half its revenue from outside Italy and its conservative lending market.

— UniCredit, whose units include Germany’s HVB, is among market leaders in Germany and Austria.

— UniCredit’s share price has dropped about 62 percent since the start of the year, pushing it second to Intesa Sanpaolo among Italian banks. The DJ Stoxx European banks index has lost about 52 percent.

— First-half net profit was 2.9 billion euros on operating income of 14 billion euros. Deposits from customers and debt securities totalled 639.8 billion euros.

— The bank traces its origins back to 15th century Bologna. The current UniCredit resulted from the merger of nine of Italy’s biggest banks in 1998, as well as the purchase of HVB in 2005 and Italy’s Capitalia last year.

— The biggest shareholder is the Fondazione Cassa di Risparmio di Verona Vicenza Belluno e Ancona, at 5 percent.

— Libya now comes second with its combined 4.23 percent, followed by:

Fondazione Cassa di Risparmio di Torino with 3.83 percent

Carimonte Holding with 3.35 percent

Gruppo Allianz with 2.37 percent

Fondi Barclays Global Investors UK Holdings Ltd with 2.01 percent.

— UniCredit is the biggest shareholder in powerful investment bank Mediobanca SpA with an 8.7 percent stake.

Evidently, in this type of business, what you pay for is what you get:

Italian Prime Minister Silvio Berlusconi pledged $5 billion over 25 years to Libyan leader Muammar Qaddafi in compensation for the occupation of the country in the 30 years before World War II.

Italy will pay $200 million per year to Libya in the form of investments in infrastructure. The money will finance the construction of a coastline highway that runs about 1,600 kilometers (994 miles) between the Egyptian and Tunisian borders.

“It’s a full moral recognition of the damage done to Libya during Italy’s colonial period,” Berlusconi said after arriving at the airport in the Libyan city of Benghazi, where the two leaders met to sign the accord. “This will end 40 years of misunderstandings.”

And why, we may ask, does the Italian government find itself in need of recourse to what might be termed the Libyan Connection” in order to recapitalise its banks. Well, Global Insight in a very informative recent survey of EU government commitments to their banking sector perhaps offer us one part of the explanation, they simply don’t have any money available to spend themselves, and with debt at around 104% of GDP, people – apart from the kind Libyans that is – are going to become increasingly reluctant to lend it to them.

In a deviation from the measures seen in France and Germany, Italy has not created a fund for its rescue plan, with Finance Minister Giulio Tremonti stating that, “As of today, we estimate that it’s not necessary to have a predetermined figure.”……Italy is in stark contrast to other European nations by providing no firm capital commitments; however, the government’s reluctance to create a rescue fund could partly be a reflection of the restraints imposed by its substantial public debt, which stood at 104% of GDP in 2007.

So, as I said, with people more than likely about to become increasingly apprehensive about buying Italian government paper, then having rich and obliging friends like the Libyan government is going to be a real boon. Oh yes, and when I said “people”, I wasn’t, of course, including, at least for the moment, that other untiring friend and trusted workhorse the Italian government can still count on over at the ECB.

The Bank of Italy will also engage in a 40-billion-euro debt swap, taking on inferior bank debt for government bonds that can then be used to obtain financing from the ECB.

So don’t let yourself get behind the curve, and don’t miss out on the very latest talent-stalking trend towards ever more exotic varieties of global look-alike contests. Now which country was it where the banks were being busily underwritten by the Shanghai Pudong Development Bank, just let me go and check my records……?

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".