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Italy's Popolare Vicenza sells 9 pct of insurer Cattolica to Berkshire Hathaway


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http://www.reuters.com/article/brief-italys-popolare-vicenza-sells-9-pc/brief-italys-popolare-vicenza-sells-9-pct-of-insurer-cattolica-to-berkshire-hathaway-idUSI6N1M301Y

 

http://www.cornerofberkshireandfairfax.ca/forum/books/'the-era-of-uncertainty'-by-francois-trahan-and-katherine-krantz/msg84152/#msg84152

 

"Well, actually we can always believe that modern countries cannot default, and we can always assume that Italians will all become Germans… then, yes!, everything will be OK and Cattolica Assicurazioni is a great bargain! ???

 

giofranchi"

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http://www.reuters.com/article/brief-italys-popolare-vicenza-sells-9-pc/brief-italys-popolare-vicenza-sells-9-pct-of-insurer-cattolica-to-berkshire-hathaway-idUSI6N1M301Y

 

http://www.cornerofberkshireandfairfax.ca/forum/books/'the-era-of-uncertainty'-by-francois-trahan-and-katherine-krantz/msg84152/#msg84152

 

"Well, actually we can always believe that modern countries cannot default, and we can always assume that Italians will all become Germans… then, yes!, everything will be OK and Cattolica Assicurazioni is a great bargain! ???

 

giofranchi"

 

Yes, well... Of course I might be wrong, but I still don't like Cattolica and the fact Buffett invested 0,04% of BRK's equity in that company doesn't strike me as a very reliable vote of confidence... But the market seems to think differently and has received the news with much enthusiasm! Good for Cattolica's shareholders, and I wish them the best of luck.

 

Cheers,

 

Gio

 

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Maybe we don't hear enough from Italy these days. ...

 

Personally I think we don't hear much about the problems in Italy simply because Italy isen't really fixing the problems with its banks.

 

The shareholder letter in the 2016 Annual Report for Banca Populara di Vicenza is an interesting read.

 

I speculate Berkshire bought it because it could steal it.

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I remember that Italy sorted out 2 banks when I was there this summer.

 

But looking at the AR report that John provided. WOW! 23% of loans are non performing. You really need to try hard to screw up this bad.

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More extend and pretend. These gov'ts are betting on permanently lower interest rates in Euroland. If and when that changes, then we will se who has been swimming naked. My semse is that the way these places are piling on debt, we won't need rwtes to go up too high or for too lomg for this to become evident. The day of reckoning is coming. ZIRP has just slowed down the passage of time getting there.

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More extend and pretend. These gov'ts are betting on permanently lower interest rates in Euroland. If and when that changes, then we will se who has been swimming naked. My semse is that the way these places are piling on debt, we won't need rwtes to go up too high or for too lomg for this to become evident. The day of reckoning is coming. ZIRP has just slowed down the passage of time getting there.

Italy has a primary surplus of about 1.8 % of GDP. About the same as Germany. It's total deficit in 2016 was 2.4% of GDP and it's on track to lower that to 2.1% for 2017 through policy. It's pretty much the opposite of extend and pretend. What these poor guys could use is a bit of inflation.

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OECD: Economic Survey Italy February 2017.

 

It's such a depressing read. There are so many issues. Where to start and where to finish? It must be lack of political willingness and decisiveness to really make changes to the better, where it will hurt in the short run, to get better in the long run. I think irresponsible politicians.

 

A nation with approx. EUR 320 B non performing loans on the balance sheets of its banks at some date in 2016. It's not only mind boggling, it's also ridiculous. Lots of zombie lending clients in the banks walking around dead, without the appropriate neck shot and liquidation af assets, simply because the bank can't afford the loss on its capital. Pure Stockholm syndrome. Consequense: Phony bank balance sheets & zombie banks.

 

The fundamental question in all banking business: "Who is this going to be a pitty for, if it goes wrong?" has lost its meaning.

 

There is a long way home.

 

- - - o 0 o - - -

 

Perhaps we will se more Berkshire deals like this, based on opportunities caused by local conditions.

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OECD: Economic Survey Italy February 2017.

 

It's such a depressing read. There are so many issues. Where to start and where to finish? It must be lack of political willingness and decisiveness to really make changes to the better, where it will hurt in the short run, to get better in the long run. I think irresponsible politicians.

 

A nation with approx. EUR 320 B non performing loans on the balance sheets of its banks at some date in 2016. It's not only mind boggling, it's also ridiculous. Lots of zombie lending clients in the banks walking around dead, without the appropriate neck shot and liquidation af assets, simply because the bank can't afford the loss on its capital. Pure Stockholm syndrome. Consequense: Phony bank balance sheets & zombie banks.

 

The fundamental question in all banking business: "Who is this going to be a pitty for, if it goes wrong?" has lost its meaning.

 

There is a long way home.

 

- - - o 0 o - - -

 

Perhaps we will se more Berkshire deals like this, based on opportunities caused by local conditions.

Yes, it is a matter of extend and pretend. But if they liquidated the loss of confidence in the economy would launch these countries in a recession. In Portugal we have a similar problem, but since the economy has been growing at a quicker pace lately ( sending the unemployment rate from over 17% to less than 9% in a few years), real estate has been recovering. Since most non performing loans are guaranteed by real estate, the banking sector, if given time (with continued economic growth and a little inflation),  will end up leaving its underwater position (and also some non performing clients might end up performing). An extended liquidation would have destroyed confidence in the economy: extend and pretend might end up working in the end.

 

Edit: the government (taxpayers) lost some money bailing out the banks, but bank shareholders and junior bonds (to a much lesser extent) have been the biggest bailout, along with continued capital raises by banks which resulted in massive dilution but avoided government intervention in some banks (and massively reduced it in others)

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Inspired from Whistling in the Dark (They might be giants)

Apologies: no financial literature reference.

 

A central banker came to me, and said,

Let's extend and pretend,

We'll do whatever it takes, he said,

Balance sheets need to mend,

 

We thought it made sense,

Mark to market, can suspend,

Supress the price of money, good pretense,

Build up debt, with no end,

 

Bail-outs and risk shifting, many connotations,

Downside can be transferred but does not evaporate,

Out of the QE trap, trying to extricate,

Who pays the tab may be the center of all our attentions,

 

Maybe the magical models are too complex for my simple mind,

But with too much debt must come a bad loan hangover,

Even in a world where Japan is one of a kind,

The poster child and when zombies are taking over.

 

No worries, be all in and kick the can,

Just watch out when the shit hits the fan.

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Guest Cameron

OECD: Economic Survey Italy February 2017.

 

It's such a depressing read. There are so many issues. Where to start and where to finish? It must be lack of political willingness and decisiveness to really make changes to the better, where it will hurt in the short run, to get better in the long run. I think irresponsible politicians.

 

A nation with approx. EUR 320 B non performing loans on the balance sheets of its banks at some date in 2016. It's not only mind boggling, it's also ridiculous. Lots of zombie lending clients in the banks walking around dead, without the appropriate neck shot and liquidation af assets, simply because the bank can't afford the loss on its capital. Pure Stockholm syndrome. Consequense: Phony bank balance sheets & zombie banks.

 

The fundamental question in all banking business: "Who is this going to be a pitty for, if it goes wrong?" has lost its meaning.

 

There is a long way home.

 

- - - o 0 o - - -

 

Perhaps we will se more Berkshire deals like this, based on opportunities caused by local conditions.

 

I'm surprised I haven't seen any deals in Greece recently 90% of value has been wiped off the stock exchange still since 2008. Greek malls can be had for pennies on the dollar even as they have started to clean up, unemployment is on a downtrend for the last 2 years and they cleaned up their trade and current accounts. They still have a lot of non-performing loans like Italy though

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