Simona Caselli: Italian Legacoop's financial network


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Simona Caselli, CCFS, at the International Co-operative Alliance Global Conference in Cape Town, November 2013.

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Simona Caselli: Italian Legacoop's financial network

  1. 1. ICA  GENERAL  ASSEMBLY    -­‐  Cape  Town   Workshop  D2  "Tackling  the  economic  crisis.  Coops  at  the  forefront  of  a   beGer  world”    -­‐      Sunday  3  November       Italian  Legacoop’s  financial  network:     a  story  of    “useful  finance”  for  a  be2er  world     Simona  Caselli   Director  of  Financial  Services  and  Development  at  CCFS     Consorzio  CooperaSvo  Finanziario  per  lo  Sviluppo  soc.  coop     President  of  Legacoop  Reggio  Emilia    
  2. 2. Summary   ü Global  finance:  the  need  to  constantly  advocate  a   “real  economy  oriented”  finance   ü The  case  of  Italian  Legacoop  financial  instruments   network   ü Future  challenges:   Ø Basel  3  rules  and  expected  increase  of  credit  crunch   Ø Fair  raSng  system  for  co-­‐ops   Ø Expected  process  of  disintermediaSon   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   2  
  3. 3. 1.  Global  Financial  Markets   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   3  
  4. 4. Global  Finance   ü A[er  more  than  5  years  from  the  beginning  of  the   crisis,  global  financial  system  is  sSll  dominated  by   speculaSve  acSviSes   ü The  recently  introduced  regulaSons  seems  to  mainly   affect  ordinary  banks,  while  huge  amount  of   liquidity  are  sSll  invested  in  derivaSves  or   speculaSve  acSviSes,  o[en  realized  through  “dark   pools”  or  “over  the  counter”  pla`orms   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   4  
  5. 5. Global  Finance   DerivaSves  are  sSll  there…   ü DerivaSves  are  esSmated  at  700  trillion  $,  including   those  on  food  commodiSes,  which  are  highly   dangerous  in  terms  of  consequences  on  people’s   access  to  food   § Only  about  10%  of  transacSons  pass  trough   Stock  Exchanges;  the  rest  is  “Over  the   Counter”…   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   5  
  6. 6. Global  Finance   Dark  pools  grow  fast…   ü  Dark  pool  transacSons  are  increasing  at  very  high  rate  so   bringing  up  the  quesSon  whether  we  can  really  trust  Stock   Exchange  quotes   Ø The  total  value  of  shares  traded  through  dark  pools  in  Europe  in   the  second  and  third  quarter  rose  from  €143bn  to  €207bn.   Ø The  total  value  of  shares  traded  in  Europe  across  all  pla`orms  in   the  same  period  stayed  flat  at  about  €4.8tn.  It’s  also  esSmated   that  the  average  value  of  trade  size  rose  from  €6,639  to  €9,150   bn.   Ø 4/5  of  dark  pools  transacSons  are  short  term  and  speculaSve   Ø The  use  of  high  frequency  trading  (HFT)  can  make  the  scenario   even  worse   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   6  
  7. 7. Dark  Pools   ü  Dark  pools  are  essenSally  private  stock  exchanges  reserved  for  the   largest  traders,  including  hedge  funds,  major  insStuSonal  funds,   pension  funds,  and  big  banks.   ü  While  all  exchanges  have  a  degree  of  anonymity,  dark  pools  have  an   increased  level  of  secrecy  because  neither  the  size  of  the  trade  nor   the  idenSty  of  the  parScipants  are  disclosed  unSl  the  trade  is   fulfilled.     ü  Financial  regulators  remain  years  away  from  being  able  to  peer  into   "dark  pools,"  the  high-­‐tech  mechanism  that  insiders  use  to  conduct   secret,  advantageous  transacSons.   ü  European  policy  makers  and  exchanges  have  raised  concerns  that   dark  pools  may  damage  transparency  and  investors’  ability  to  find   the  best  prices.     ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   7  
  8. 8. Trade  Size  for  European  Dark   Pools     Source:  Thomson   Reuters,  Deutsce   bank  AG  London   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   8  
  9. 9. The  Growth  of  Dark  Trading  in   Europe  and  U.S.   Source:  The   TABB  Group   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   9  
  10. 10. The  need  to  keep  campaining  for   Good  and  Useful  Finance   ü DerivaSves  and  Dark  Pools  are  only  two   examples  of  how  financial  markets  sSll  work   ü This  is  surely  not  the  way  of  building  a  beGer   world!   ü We  must  conSnue  campaigning  for  a  Good  a   Useful  Finance  aimed  at  supporSng  people’s   work,  life  and  sustainable  development   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   10  
  11. 11. 2.  Italian  Legacoop   Financial  Network  tackling   the  crisis   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   11  
  12. 12. What  happened  to  credit  market     in  Italy?   ü A[er  a  period  of  “easy  loans”  credit  crunch  arrived   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   12  
  13. 13. What  happened  to  credit  market     in  Italy?   ü And  money  costs  increased…   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   13  
  14. 14. Legacoop  system   ü Associates  over  11.000  co-­‐ops  and  consorSa   (coop  of  coops),  including  SME  and  large  firms,   acSve  in  all  economic  sectors  (agriculture,   consumer,  social  services,  manufacturing,  retail,   building  etc)   ü More  than  8  millions  members   ü Approx  55  billion  €  consolidated  turnover   ü More  than  500.000  employees   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   14  
  15. 15. How  Legacoop  reacted     ü At  the  beginnig  of  the  crisis  Legacoop  decided  to   promote  a  network  among  exisSng  Financial  coop   insStuSons  (CCFS,  Coopfond,  CFI)    and  to  add  new   specialized  instruments  (for  factoring,  leasing,   merchant  banking  to  support  merging  and   aquisiSons)   ü   These  internal  financial  instruments,  directly  and   through  partnership  with  banks,  should  work  to   garantee  support  to  co-­‐ops  investments  and  ordinary   acSvity   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   15  
  16. 16. Legacoop    financial  instrument   network   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   16  
  17. 17. CCFS   The  company  and  his  mission   ü CCFS  is  the  only  "Purpose  Company"  of  the  Italian   Legacoop  that  operates  in  the  field  of  the  financial   intermediaSon  and  other  related  services,  in  order  to   provide  its  Member  Co-­‐ops  with  financial  resources   they  need  to  support  their  acSvity  and  investments.   ü CCFS’s  aim  (in  accordance  with  its  By  Laws)  is     Ø to  promote  the  development  of  the  members  Companies   (Co-­‐ops  and  their  controlled  LLCs);     Ø to  parScipate  in  the  development  and  consolidaSon  of  the   CooperaSve  Movement,  Legacoop  and  other  Bodies  that   are  appointed  to  represent  it,  in  Italy  and  abroad;   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   17  
  18. 18. CCFS   The  company  and  his  mission   ü Actual  acSvity  is,  thus,  instrumental  to  that   aim  and  is  to   Ø help  the  sesng  up  of  new  Co-­‐ops  in  many  and   diversified  economic  sectors;   Ø Facilitate  member’s  access  to  credit  and  to  other   financial  resources;   Ø intermediate  financial  resources  received  by   member  co-­‐ops,  providing  other  meber  co-­‐ops   with  loans,  under  different  technical  forms     Ø financial  advisoring     Ø other  services   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   18  
  19. 19. CCFS   Loans  to  members  2008-­‐2013   900   800   700   600   500   400   300   200   100   0   2008   2009   2010   2011   medium  indirect  member  loans  stock  (mln  €)   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   2012   2013  (sept)   medium  member  loans  stock  (mln  €)   3/11/2013   19  
  20. 20. CCFS   Some  key  figures  (updated  september  2013)   ü More  than  1.150  member  co-­‐ops   ü €  1.150  million  Deposits  from  Members   ü €    828  million  Loans  to  Members   ü €  6,5  billion  compensaSng  transacSons  among   member  co-­‐ops   ü OperaSng  with  more  than  40  banks,  for  a  total   yearly  amount  of  financial  movements  of  €  46   billion   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   20  
  21. 21. Coopfond   ü Italian  law  59/1992  regulates  the  insStuSon  of   MutualisSc  Fund  for  cooperaSve  start-­‐up  and   development  (according  to  the  principle  of  external   mutuality)   ü Every  Italian  cooperaSve  must  pay  3%  of  its  net   annual  profit  to  MutualisSc  Fund  (this  principle  adds   on  others  cooperaSve  principles  such  as  indivisible   reserves,  one  head-­‐one  vote,  open  membership,   limited  yeld  on  capital…)     ü Coopfond  is  the  Company  that  manages  the  Fund   insStuted  by  Legacoop   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   21  
  22. 22. Coopfond   ü The  Fund  is  generated  by:   Ø the  collecSon  of  3%  of  annual  profits  of  all   exisSng  cooperaSves;   Ø the  collecSon  of  the  residual  assets  of  dissolved   and  transformed  cooperaSves     Ø Fund’s  own  increases  achieved  by  retained  profits     ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   22  
  23. 23. Coopfond     The  Mission   ü To  produce  an  opSmal  environment  for  the   development  of  the  Italian  co-­‐operaSve  system   ü To  manage  efficiently  the  Fund  and  to  guarantee   its  holdings,  reducing  losses   ü To  favour,  in  the  Company’s  acSvity,  innovaSng   and  socially  qualified  enterprises   ü To  aid  in  territorial  re-­‐balancing,  parScularly   between  northern  and  southern  Italy     ü To  improve  partnerships  within  the  Co-­‐operaSve   Movement  and  relaSonships  with  local   communiSes   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   23  
  24. 24. Coopfond     Basic  guidelines   ü Coopfond’s  acSvity  usually  foresees  temporary   intervenSons  with  medium-­‐long  term  horizon   (5-­‐10  years),  in  accordance  with  refundable   rules  of  acSvity:     Ø loans  have  a  natural  duraSon  according  to   scheduled  payment  plans   Ø capital  share  pay  back  is  planned  by:   §  withdrawal  at  nominal  value   §  buy-­‐back  from  co-­‐op  (especially  if  Coopfond  is  a   member  of  new  enterprise  under  co-­‐op  control)   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   24  
  25. 25. Coopfond     The  Fund’s  Stock   ü  The Fund’s stock managed by Coopfond now amounts to about € 430 million (Sept. Balance Year 2013) The time series shows how economic crisis has hit net profitability of cooperatives (this show social committments of coops: reduction of margin with stable or even growing employment) (*) the 2012 data are not still final ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   25  
  26. 26. Coopfond   Accumulated  IntervenSons  (equity  and  loans)   800000   700000   600000   500000   400000   Loans   300000   Equity   200000   100000   0   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   26  
  27. 27. Coopfond   In-­‐payments  and  desSnaSons   In-­‐payments  per  year   40000   120000   35000   100000   30000   80000   25000   60000   20000   15000   40000   10000   20000   0   0   1992   1994   1996   1998   2000   2002   2004   2006   2008   2010   2012   93   94   95   96   97/98   98/99   99/00   00/01    01/02    02/03    03/04    04/05    05/06    06/07    07/08    08/09    09/10    10/11    11/12    12/13   5000   Equity   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   Loans   27  
  28. 28. Coopfond     Some  key  figures  (updated  september  2013)   Total  amount  in  21  years   ü More  than  750  projects  coming  from  more  than  550   cooperaSves   ü 270  projects  realized  and  480  in  por`olio   ü More  than  1,5  billion  €  of  investments  enabled  by   cooperaSves  and  25.000  increase  in  employees   ü €  620  million  disbursed  by  Coopfond  (sum  of  collecSon   of  3%  and  refund),  of  which     Ø €  420  ml  directly  refundable  projects   Ø €  200  ml  indirectly  invested  in  refundable  projects  in   instrumental  companies   Ø  €  320  ml  by  share  capital   Ø  €  300  ml  by  loans   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   28  
  29. 29. Coopfond     Concluding  remarks   ü  The Fund was created in order to generate a virtuous circle designed to develop the cooperative enterprise form using selfgenerated resources coming from other cooperatives (principle of solidarity) ü  The financial means provided in equity shares have allowed many cooperative to strenghten their equity and improve their creditworthiness (by providing “patient capital”) ü  Coopfond acting as a sort of merchant bank without being a classic merchant bank (no capital gain, no surplus value, eased interest rate, valued added created left in the cooperative) has raised the entrepreunerial vision of cooperative system as a whole ü  The refundable principle has allowed to disburse more financial resources than those collected just from the funds raised with the 3% ü  The number of unsuccesses (bankruptcy, write-off and insolvency proceedings) is below the average of the credit system (even if increasing due to economic crisis), also thanks to the support given by other cooperatives and consortia involved and careful monitoring ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   29  
  30. 30. 3.  Future  Challenges   Ø Basel  3  and  credit  crunch   Ø Fair  raSng  for  co-­‐ops   Ø DisintermediaSon  and   access  to  capital  markets   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   30  
  31. 31. ü Basel  III  new  requirements:   Ø Increase  of  Common  Equity  percentage  held  by   the  bank  from  2%to  4,5%  of  Risk  Weighted  Assets   (RWA)     Ø Capital  Tier  1  capital  raIo  from  4%  to  6%  of  RWA   Ø Total  regulatory  capital  confirmed  at  8%  of  RWA   Ø IntroducSon  of  a    Capital  ConservaIon  buffer   equal  to  2,5%  made  by  Common  Equity  Tier  1    to   be  retained  in  non-­‐stress  periods   Ø IntroducSon  of  a  variable  Countercyclical  Capital   Buffer  made  by  Common  Equity  Tier  1  under   naSonal  legislators  decision,  during  expanding   credit  period,  unSl  a  max.    2,5%     Credits:  Federico  Parmeggiani  -­‐  Università  di   Modena  e  Reggio  Emilia  –  Department  of   Economics"   Basel  3:  what  changes  
  32. 32. Credits:  Federico  Parmeggiani  -­‐  Università  di   Modena  e  Reggio  Emilia  –  Department  of   Economics"   Capital  requirements  Basel  2/   Basel  2.5  to  Basel  3   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   32  
  33. 33. Credits:  Federico  Parmeggiani  -­‐  Università  di  Modena  e   Reggio  Emilia  –  Dipartment  of  Economics"   Phase-­‐in  arrangements  Basel  3   capital  requirements   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   33  
  34. 34. Consequences  of  Basel  3  rules   ü More  capital  stability  in  banks,  but…   ü It  has  been  esSmated  (Slovik  –  Cournède,  OECD,  2011)   that  Basel  III  rules  can  cause  a  reducSon  in    GNP  among   -­‐0,05%  and  -­‐0,15%  under  non-­‐stress  condiSons   ü Some  studies  (Slovik,  OECD,  2012)    suggests    big  banks   with  high  systemic  relevance  could    more  easily    bypass   rules  in  tricky  way,  so  small  and  medium  sized  banks   are  expected  to  be  more  affected  and  penalized   ü An  esSmated  worldwide  credit  crunch  equalling  5,000   billion  euros  (Boston  ConsulSng  Group,  Facing  New   Reali:es  in  Global  Banking,  2012)       ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   34  
  35. 35. Italian  Companies  Funding   !"#$%&'"#()#$)*+*,)+'"*-%#(".."#)'/&"0"#)-+.)+*"# Credits:  Luca  Penna  –  Partner  Bain&Co.   =0%-(&')(&,(%#&,/)&+>#(&+0/ An  InternaSonal  comparison   Source:  Il  Sole  24  Ore   1!"#$"%&'%!()&"%*+","&"-."234#'+#).#5%*$&%*-%#+#.)6"..%#)*-"&*+,)%*+."7#"6)("*,)+#+*5%&+#8*#$%&-"# InternaSonal  comparison  shows  big  differences  in  use  of  “private  debt”  or  alternaSves  to   ()$$"&"*,)+."#*".#&)5%&0%#+#$%&'"#()#$)*+*,)+'"*-%#+.-"&*+-)6"#+.#5+*+."#9+*5+&)%# bank  loans   ?(&,/@%=0%A(0/%BC%D)/ < !"#$%#&'()*+,#(&%#$%-(&'#./&,#+0%+&.%1+$%2)/2+)/.%34%5+#&%6%7(*2+&4%$(0/04%'()%,"/%8$/%('%(8)%-0#/&,9%#,%#$%&(,%,(%3/%)/0#/.%(&%34%+&4%:).%2+),4%1#,"(8,%5+#&;$%2)#()%1)#,,/&%-(&$/&, ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   35  
  36. 36. CriScal  issues  for  a  fair  co-­‐op   raSng   ü  If  predicSons  on  disintermediaSon  process  are  true    the   need  for  a  fair  raSng  system,  really  able  to  understand  co-­‐ operaSves,  becomes  more  urgent.     ü  What’s  important  to  consider  in  order  to  have  a  fair  raSng   for  co-­‐ops?   Ø Members’  rebates:     §  addiSonal  remuneraSon  for  workers,  recognized  on  year  basis  if  co-­‐op   efficiency  produces  profits,  aren’t  considered  by  raSng  system,   because  they  are  buried  into  work  costs.  So  efficiency  is  always   underesSmated.   Ø Indivisible  reserves  (retained  profits)     Ø Special  rewards  for  the  goods  conferred  by  members    in  agro-­‐ industrial  sector.   Ø Member’s  loans   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   36  
  37. 37. The  urgent  need  of  fair  raSng   system  for  co-­‐ops   ü Current  raSng  systems,  used  by  banks  and   other  financial  operators,  are  build  for   ordinary  for-­‐profit  companies.  No  specific   raSng  system  for  non-­‐profit  and  co-­‐ops   companies  has  been  officially  validated  yet   ü A  fair  raSng  for  co-­‐ops  will  be  crucial  and  so  it   should  be  part  of  “CooperaSve  Decade”   acSons  (with  regard,  in  parScular,  to  “legal   framework”  and  “capital”  secSons  of  the   document)   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   37  
  38. 38. ü THANK  YOU  FOR  YOUR  ATTENTION!!!   Simona  Caselli   ICA  GENERAL  ASSEMBLY  CAPE  TOWN   3/11/2013   38