The Capital Markets for Italian Companies: A Resource to Relaunch the Country and Renew Growth

Prefazione alla ricerca a cura di Equita 

The institutions and leading opinion makers unanimously agree on a number of key points regarding the financial structure of Italian firms. Quite simply: (i) the average Italian firm is too small and undercapitalized, and (ii) bank loans have been used to an excess in this country, but they must make way for other forms of financing, as is the case in all evolved countries. In light of the current financial context, evolved and efficient capital markets are a must. Without them it is impossible to trigger a new upsurge in investments needed to boost Italian competitiveness and to improve growth prospects for the Italian economy.

Moreover, capital markets must compensate for the credit crunch and the challenges of public financing. In sum, the capital markets represent a fundamental infrastructure that serves to support growth for the country and to provide funding for firms.

But as the evidence shows, this description contrasts with the current state of the financial markets in Italy, where we find involution, a phenomenon which major institutions routinely disregard. We need only be reminded that according to a recently published study, the Borsa Italiana accounts for less than 1% of capitalization on the global equity market, placing 23rd in the world ranking. Moreover, in the past decade the Borsa has recorded the worst performance of all the markets in the study, with 29 delistings from 1990 to today. As for investors, in 2012 the Italian investment management industry slid to 14th place in the world (from 3rd place in 2002).

A negligible number of companies access the capital markets through bond issues, which taken together account for less than 7% of the total debt of non-financial firms. In addition, due to the norms regulating the financial markets, issuers face high costs and extremely onerous admission procedures: the last company to be listed on the main market of the Borsa Italiana had to publish a 770-page prospectus, and despite this information overkill, went on to lose 20% post-listing. The latest fiscal initiatives too have penalized the Italian markets instead of relaunching them. Case in point, the detrimental and ineffective Tobin Tax which – as all market players predicted – is already failing to generate the projected revenues and dampening the interest of foreign institutional investors in the Italian markets.

In light of all this, the number one priority for this country, and specifically for the firms that constitute the backbone of the Italian economy, is to make the capital markets the central focus of strategy sessions and institutional initiatives once again. To guarantee that firms have access to an evolved domestic financial market, these four essential conditions must be met:

1. A regulatory framework and tax regime that is advantageous, rational, and fair, protected by efficient and authoritative market managers and regulators
2. An investment banking sector that is solid, responsive to the needs of firms, well-structured and free of conflicts of interest
3. A vast pool of investors willing to invest in both the equity and debt capital of Italian firms, even SMEs
4. A cultural context and mass media that promote and enhance the key role that financial markets play for firms and for individual investors

In Italy, all these considerations call for reflection and study. We need to put these issues on the table, and make them the focus of initiatives that can breathe new life into the sector, to turn around what has been happening for years. With a few recent exceptions, institutions have underestimated the negative dynamics that have impacted the capital markets sector, as well as the potential consequences. In fact, financial market activity has actually been ‘demonized’, with no distinction drawn between strategic activities to enhance overall equilibrium and actions that jeopardize this equilibrium (almost exclusively undertaken by global financial groups).

Here are some obvious and necessary initiatives that must be incorporated into a comprehensive project to redesign the capital markets to the benefit of firms:

• Simplify the regulatory framework.
• Provide incentives, including tax breaks, to encourage individual investors to invest in the capital markets and to facilitate market access for firms.
• Increase the number investors in Italian equity as much as possible, by leveraging new initiatives and mobilizing existing instruments for investment management.
• Eliminate conflicts of interest that affect stock exchange regulations, lending policies of big banking groups, and the activity of investors controlled by these groups.
• Repeal the Tobin Tax, which is ineffective and drives away investors.
• Develop a financial culture that is also reflected in an appropriate journalistic language, avoiding terms that are misused today such as speculation, locust funds, and junk bonds, which reveal a prejudice toward the markets that is unparalleled in other developed countries.

The list of concrete initiatives goes on, based on a meticulous analysis of various aspects of the markets and the players who guarantee that the markets function. Positive and encouraging are the 2012 Decreto Sviluppo (Decree for Development), the project Destinazione Italia, and the PiùBorsa initiative coordinated by Consob, clear signs of renewed focus on this strategic issue by the institutions.

EQUITA SIM, founded in 1973 under the name Euromobiliare, has always been a strong, innovative player in the financial markets, and a major contributor to their evolution. This is why for our institution it is a great pleasure and honor to initiate a three-year collaboration with Bocconi University. The aim of this project is to analyze the major characteristics of the capital markets for firms, to make a concrete contribution to the debate on this vital issue for the development of the country, and to search for incisive solutions and attentively and rigorously monitor their implementation and evolution.