Matteo S.

THE FUTURE TECHNOLOGIES AND THE BIG OF THE SILICON VALLEY

Our lives are changing faster and faster, every day there are new types of technologies and it is nearly impossible to assimilate all the information regarding these topics.

Following the evolution of technologies has become essential and not doing so would mean to be excluded from the society in which we live.

From today to the next 5 years, the hot topics will be: Hyperloop, self-driving car, mind sharing, helpful home, sharing economy, self-tracking, quantified self, nano architectures, apple pay, cinematic reality, car-to-car communication, project loon, liquid biopsy, brain organoids, superhuman photosynthesis, large-scale desalination, DNA internet, neuro-hacking, quantum, nanotechnology, darker networks, universal translators, avatars, robots, fuel cell vehicles, thermosetting recyclable plastic, genetic engineering, additive manufacturing, distributed production, drone “sense and avoid “, neuromorphic technology, digital genome, digital assistants, free internet for all, quantum computers, space vacations, ultra-reality, disease prevention, x-ray, big date and pollution control.

These are just some of the topics we’ll have to deal with, many of them, although they have been developing for some years, may be still unknown to most readers.

Getting informed has become essential in order to adapt ourselves in the best way.

We are faced with an unprecedented technological revolution: in order to stay updated it is necessary to follow people that are doing the future right now. Silicon Valley’s Big 9 are Peter Shankman (founder of Haro), James Altucher (entrepreneur, podcast and author), Alec Cross (former senior consultant of Hilary Clinton and author), Mariam Naficy (Minted.com CEO and board member of Yelp), Chamath Palihapitiya (Chief Financial Officer), Kevin Rose (Hodinkee’s CEO and Digg’s co-founder), Sam Rosen (CEO of MakerSpace), Andrew Torba (AutomateAds.com) and Tim O’Reilly (founder and CEO of O’Reilly Media).

TECHNOLOGY AND THE WORLD OF WORK

Surely, one of the most disruptive technology on the working world will be robotics. The ONU has even launched an alarm bell: according to the most reliable estimates, about 66% of professions will be replaced by machines.

Nevertheless, it is not said that man must necessarily be afraid of evolution, what distinguishes us from any other being is our cortical bark.

The cerebral cortex is a continuous laminar layer that represents the most outer part of the telencephalons in vertebrates. Formed by neurons and nerve fibres with a thickness of about 2-4 mm, the human brain cortex plays a central role in complex cognitive mental functions such as thought, awareness, memory, attention, and language.

The cerebral cortex is considered to be the most evolved and complex structure of all living systems and is precisely what allowed our species to survive.

According to different analyses, this will not be about job destruction, but transformation of professionalism.

The ONU, through the Unctad Report (United Nations Conference on Trade And Development) “Robot and Industrialization in Developing Countries”, reported that robotics will replace half of the jobs, in particular in Asia, Africa and Latin America.

In addition, according to the World Economic Forum, the evolution of work will result in the creation of 2 million new jobs, but at the same time 7 million jobs will disappear.

Despite these analyses, however, the opposite is widespread, that job losses are only a transitory drawback and that in the long run there will be many benefits.

According to Klaus Schwab, founder and executive of the World Economic Forum, robots and artificial intelligence will not replace human beings but will free them and give them more time to do other works, much more rewarding.

The real danger is that the drop in employment will be faster than the creation of new job roles. This can be avoided through a careful planning of our economies.

Another interesting point of view can be represented by Uber’s response to Sharan Burrow, Secretary General of the International Trade Union Confederation, following the accusations received.

Uber’s founders do not believe that they are destroying taxi drivers job market, but that they are making people free from slavery to work from 8 am to the evenings and not to have the possibility to manage their time freely.

A NEW WORKING CONCEPT

John Maynard Keynes already at the beginning of the twentieth century talked about “technological unemployment”, arguing that automation would progressively remove man from the labour market by replacing them with more efficient machines.

The direct consequence of this phenomenon is an increase in real income (net of inflation), which leads to an increase in demand in new sectors by opening up new occupational spaces. If until now “technological unemployment” is still a concern, the fear that from here to a near future what was predicted long time ago by Keynes could really happen is approaching.

The range of activities the machines can accomplish today is very wide and with time these will expand with cops, shopkeepers, barman, co-workers, attorneys, carers, bureaucrats and journalists for example.

In Hong Kong, a venture capital company, Deep Knowledge, has named in its board of directors an artificial technology called Vital, giving it the same voting right as all other components. This technology allows them to calculate the best investments.

The relationship between man and machine will completely change the concept of work.

One of the most positive performers will be the re-shoring phenomenon, which reverses the tendency of outsourcing to markets at a lower cost of labour.

Advanced technology automation is helping this change by allowing companies to remain competitive in terms of cost and to maintain production in their own country.

The Institute of the Future of Palo Alto (California, USA), a research institute specialized in long-term and quantitative research on the future, predicts that in a globalized and more and more computer-based world, phenomena such as automation, growth of online work and sharing economy are redesigning the job.

In an age of growing instability and uncertainty over the future of professions and works, it becomes increasingly important to acquire, develop and upgrade the skills needed to move flexibly and effectively through constantly changing contexts and working conditions.

Most likely the worst jobs will disappear, while those requiring soft skills and cross-skills will be the most demanding.

SKILLS FOR COMPETITIVE RETURNING

Researchers at Phoenix University have highlighted in a forward-looking research the new work-skills that will allow employee to remain competitive and that will have a growing weight in the future.

Here is a brief list:

1. Social intelligence: includes communicative and relational skills, leadership, negotiation and conflict management;
2. Adaptive thinking: ability to identify solutions beyond the predefined reference frames;
3. Cross-cultural competence: ability to relate to multicultural contexts;
4. Computational mentality: Flexible mentality with computational skills, i.e. the ability to organize abstract concepts from large amounts of data;
5. New Media Skills: Media Capabilities and Persuasive Content Production.
6. Transdisciplinary: ability to understand, integrate and apply aspects of different disciplines to your work;
7. Design-oriented mentality: ability to graphically represent objectives and processes that are implemented to achieve them.
8. Ability to collaborate in virtual environments: group work extended to virtual teams.
9. Cognitive Load Management: Ability to filter, select and organize information appropriately (implies the ability to keep attention and concentration, as well as to shift the focus of attention in a functional way).
10. Sense making: ability to “give meaning” to information and situations, grasping its profound meaning.

More and more important will be the management of your time, which will be recognized as a valuable asset of value. This will enable you to achieve and maintain a stable working situation while at the same time letting you to spend part of your time on private life.

 

Matteo Spiller

The Crypto Currencies:

A cryptocurrency is a digital asset or a virtual currency used as a mean of exchange through encryption in order to make transactions secure and to control the creation of a new currency.

A definitive feature of cryptocurrency, and arguably its most captivating allure, is its organic nature; It is not issued by any central authority, and this feature makes it theoretically immune to government interference or manipulation.

The Crypto Currencies are mainly characterized by four traits: decentralization, anonymity, immediacy and dynamism.

They exist in a network created by thousands of people operating on online platforms and can not be controlled by governments and banks because the system doesn’t allow to disclose any information regarding the owners and users of Bitcoin.

Bitcoins are not related to personal data, and as a simple set of alphanumeric characters, it is not possible to identify the owner or user. Thanks to the Bitcoin’s structure and organisation, transactions are much faster than the ones use in traditional banking.

These transactions are faster because there are thousands of people in the system that contribute to approve and control them.

Nevertheless, the cryptocurrencies’ market is very unstable even though an expanding one. Short-term gains can be very high but the same applies to losses.

As a precaution against digital counterfeiting, a “proof-of-work” scheme is used, which is a mechanism built to discourage denial of service attacks and other abuse of service, such as spam on the network. The technologies used are of peer-to-peer (p2p) type on networks whose nodes are the users scattered around the globe.

“Proof of work” is a protocol whose main goal the deterring cyber-attacks such as a distributed denial-of-service attack (DDoS): it has the purpose of exhausting the resources of a computer system by sending multiple fictitious requests.

The “Proof of work” concept existed even before bitcoin, but Satoshi Nakamoto applied this technique to his digital currency revolutionizing the way traditional transactions are set.

In fact, the idea was originally published by Cynthia Dwork and Moni Naor back in 1993, but the term “proof of work” was coined by Markus Jakobsson and Ari Juels in a document published in 1999.

Proof of work is maybe the biggest idea behind Nakamoto’s bitcoin white paper – published back in 2008 – because it relies on trustless and distributed consensus.

 

Most crypto coins have been designed to gradually introduce new currency units, to avoid hyperinflation.

 

Below are the most important currencies in circulation:

Source: coinmarketcap.com

• Bitcoin (BTC), founded in January 2009, based on the “proof-of-work”protocol, is the first crypto currency for value, the first to be known in bulk and to be recognized as a form of payment by various websites, including those in the deep web.

• Litecoin (£) reached $41m in December 2013, uses scrypt as a “proof of work” system and blocks every 2.5 minutes instead of every 10 minutes as Bitcoin does.

A scrypt is a memory hard key-derivation function. Memory hard functions require a large amount of RAM to be solved. This means that a standard ASIC chip used for solving the Bitcoin SHA-256 Proof of Work would need to reserve a certain amount of chip space for Random Access Memory instead of pure hashing power. 

 

• Peercoin (PPC), born in August 2012, it is the first crypto currency based on the combination of proof-of-stake (PoS) and proof-of-work (PoW) protocols. As of November 30, 2013, it is the third with a capitalization of $8.2m.
• Quark (QRK), born in July 2013.
• Namecoin (NMC), born in April 2011, it acts as a decentralized DNS that avoids censorship of domain names by creating a new domain level outside of ICANN’s control.
• Feathercoin (FTC), born as a Litecoin clone in April 2013, with MIT / X11 license. Use scrypt as a proof-of-work system. In December 2013 it had a value of 1.03 million dollars.
• Primecoin (PPC), established in August 2012, it uses a mixed proof-of-work and proof-of-stake system.
• Dogecoin, (DOGE) based on scrypt.
• Coinye, based on scrypt.
• Titcoin, based on scrypt.
• Primecoin (XPM or Ψ), based on the Cunningham Chain.
• Datacoin (DTC), based on the Cunningham Chain.
• GlobalBoost-Y (BSTY).
• Ethereum (Ξ), released in July 2015, its concept is to provide small decentralized applications or smart contracts to the blockchain.

 

“Proof of stake” is a different way to validate transactions and achieve the distributed consensus.

It is still an algorithm, and the purpose is the same as the “proof of work”, but the process used is quite different.

Proof of stake’s first idea was suggested during the BitcoinTalk forum in 2011, but the first digital currency to use this method was Peercoin in 2012, together with ShadowCash, Nxt, BlackCoin, NuShares/NuBits, Qora and Nav Coin.

Unlike the “proof-of-work”, where the algorithm rewards miners who solve mathematical problems with the objective of validating transactions and creating new blocks, with “proof of stake”, the creator of a new block is chosen in a deterministic way, depending on its wealth, also defined as stake.

The cryptocurrency market has already exceeded $ 100 billion in capitalization and in particular the crypto currency that has been so far the most successful is Bitcoin, which represents 40% of the market counting about 45 billion capitalization. Undoubtedly, Bitcoin is the gold standard in the crypto currency industry but despite that the competition is very aggressive.

 

THE FUTURE OF CRIPTOVALUTE:

This sector has attracted the attention of several banks, governments, investors and even universities. The potential expressed by the Distributed Ledger Technology (DLT) transaction system is huge, but most of the traditional institutions haven’t realized yet the real benefits that can derive from this sector. First of all, we must remember that this system:

1 – Reduces or eliminates all transactions that were previously carried out manually

2 – allows you to monitor all transactions in real time

3 – Reduces the time of all clearing and settlement processes

4 – Reduces the counterparty’s risk by verifying the validity of the counterparty

5 – It contributes to the increasing capital circulation through the boosted speed of transactions

6 – This coin type is fully traceable and as a consequence the risk of fraud is minimized.

From the business point of view, the benefits of this technology include:

1 – the improvement of trade finance operations

2 – the reduction of bureaucracy-derived waiting time

3 – the improved speed in making payments

4 – Improving the use of capital through greater efficiency

Most likely, the future of crypto currencies will depend on the collaboration that will be established between all market-based institutions and legislative decisions.

 

CRIPTOVALUTES DO NOT REPRESENT A SOLUTION:

Despite the benefits of using this technology, blockchain is not the solution to all the problems that affect our financial system. Currently, the world is discovering a new financial instrument and this boom is leading to the creation of a huge bubble that will burst soon. Given the speed with which this phenomenon is spreading, the traders of new currencies haven’t even had time to study the limits, problems and opportunities of these tools. According to some industry experts no crypto currency is safe outside of Bitcoin and the success of all competitors is only due to current market excitement. Several experts found obvious correlations between the tulip bubble and the alleged crypto currency one.

According to Sole 24 Ore, the most important Italian business and finance newspaper, despite these tools being virtual, they are damaging the real economy and fuelling a recycling phenomenon. The independent intergovernmental body that develops and promotes policies aimed to protect the global financial system against money laundering, terrorism financing and proliferation of weapons has not set half-measures on Bitcoin.

“Virtual currencies and bitcoins in particular are the wave of the future for payment systems – says the report – and provides a new and powerful tool for criminals, terrorists, financiers and evaders, enabling them to circulate and keep illegal funds outside the scope of law. ”

Claudio Clemente, Director of Banca d’Italia’s Financial Information Unit (UIF) reiterated what was stated by the independent intergovernmental body. According to the Financial Action Task Force on Money Laundering (Fatf Gafi) by 2140, 21 million bitcoins will be recorded (but each unit can be divided into small parts) and in April 2014 it had calculated more than 12.5 million bitcoins a counter value of more than $ 5.5 billion.

The National Antimafia and Counterterrorism Directorate has been following the evolution of the situation for a long time and has indicated that there are still many barriers to information exchange, while organized crime is getting closer to modern Communications technology.

“Financial investigations – recalled the deputy national antimafia and anti-terrorism agent Filippo Spiezia – must take into account these developments, such as the spread of virtual currency. Above all, is needed a shared improvement of the quality of response in cases requiring a coordinated approach involving multiple jurisdictions. It is in this context that the possibility of creating a new Interpol Notice specifically aimed at facilitating the exchange of information in investigative procedures focusing on tracing and identifying the proceeds of crime has been specifically examined.

 

ETHEREUM CASE:

Ethereum can be considered as an emblematic example of the risks that these new technologies may have. Unlike other crypto currencies, Ethereum is not only used for currency exchange but also represents a network for contract transactions to perform many operations such as: electoral systems, domain name registration, financial markets, crowdfunding platforms, intellectual property and much more. The success of Ethereum is due to the unexpected increase in value of about $ 392 in just 6 months.

It was thought that Bitcoin could have been far from over but this did not happen, today the value of Ethereum is about $ 200 and that value is set to go down.

The worsening of expectations was due to a flash crash that led to a variation of $ 310 to 10 cents. Today, oscillations are frequent and of considerable magnitude.

These financial instruments are for experts only, value changes are sudden and worrying. Nonetheless, if properly used, investors can become millionaires in no time. The case of the anonymous digital portfolio holder number 0x00A651D43B6e209F5Ada45A35F92EFC0De3A5184 has been emblematic, which has managed to pass, through Ethereum, from $ 55 million to $ 283 million in just a few months and announced it through Instagram in Bahasa, an Indonesian official idiom , One of the world’s tax havens.

 

SHOULD YOU INVEST IN CRIPTO CURRENCY?

To invest in crypto currency you need to be aware of what might happen given the risk that these financial instruments entail.

It is often possible to read that anyone who starts investing in Bitcoin or its competitors will become rich in little time or that these tools must absolutely not be used given the high probability of losing its own capital.

Both theories are wrong, the best advice is to study before beginning to invest but above all it is very important to invest small amounts of money whose loss would not affect your financial situation.

The future of monetary technology will also be this, but now it is too early to determine which will be crypto currency’s future given the rising of problems involved with it.

 

Matteo Spiller

In the end a final decision has been taken for resolving the problem regarding the Venetian Banks (Banca Popolare di Vicenza and Veneto Banca), the Italian Government and the ECB have approved the acquisition from Intesa Sanpaolo for 1 euro.

The requests from Intesa Sanpaolo for saving the North-East Italian economy are many but the government didn’t have another solution because of rigid European regulations and the critic situation.

The most important Italian bank, Intesa Sanpaolo, will buy the good bank, while the bad bank with the non-performing loans and all the riskiest assets will be managed by the government.

Moreover, many billions has been given to Intesa from the government for managing the performing assets of the Venetian banks, with the aim to reach profitable revenue in only two years.

An amount equal to 17 billions of public money is available to solve this issue, but it is estimated that only 10 billions will be actually used.

On the other side, Pier Carlo Padoan, the Italian Minister of Economy and Finance, believes that the Treasury will recover these investments thanks to the risky assets coming from the bad bank, if managed in the right way.

Many Italian citizens are not satisfied with this solution, as their money is being used to resolve problems concerning private banking companies.

Despite this, it is really important to remember that without this solution and with the bail-in the macroeconomics damages to the Italian economy would have been around 30 billion euro. We shouldn’t forget the Lehman Brothers’ case and that the Noth-East is one of the most productive areas in Italy.

Since banks are connected with the economic and financial environment and for this reason it is impossible to make use of the bail-in without a reliable industrial plan.

This could save thousands of jobs and isolate the bank from the economic and financial environment. This means that the management of all the transactions, services, credits and loans would be entrusted to another institution, which could operate in the place of the insolvent bank.

By doing so, it could be possible to save the real economy and the interests of all citizens.

Nevertheless, the solution adopted by the Italian government is without doubt effective and for sure better than the liquidation hypothesis.

The other possible solutions

In this scenario the other possible solutions could have been another intervention form Atlante but in many cases, though, Atlante’s investors claimed that they were not available to contribute anymore, as earlier their participations had been devaluated several times.

Now, with the acquisition from Intesa these participations will be worth nothing.

Another possible solution could have been the investments of Poste Italiane but it the end this institution did not do a reasonable offer.

Finally, the most interesting solution could have been the precautionary recapitalization and the merger between Banca Popolare di Vicenza and Veneto Banca.

In this way the government could have spent less than the hypothesis adopted, around 5 billion euro, but the ECB asked at least 1 billion of investment from the private sector before allowing the government recapitalization.

This is really difficult to realize because even if it is necessary to respect the rules, these should be connected with the real economy and it is obvious that it is quite impossible to ask such a huge investment to the private sector to save two banks in difficulty. In fact, no investors offered to join in this operation.

For this reason Pier Carlo Padoan tried many times to ask to the BCE a reduction of the required investment but the request has been rejected.

This is a clear example of the scarce coherence between regulation and real economy, rules should be contextualized to the environment.

A better solution

The support of the whole Italian banking system, as Intesa Sanpaolo suggested, could have been a better solution. Although it could have been risky but in this way every bank could have contributed depending on its importance in the banking system.

The problem was that only a few banks were available for this solution.

With this solution Banca Popolare di Vicenza and Veneto Banca could have continued to work independently, the competition in the banking system would not have decreased and now there wouldn’t be the problem of the redundancies.

Moreover, the Venetian economy needed its own banks, these two banking institution are part of the history of the Venetian economic and financial environment, as they contributed to the development of many companies and today is the end of an epoch.

Conclusion

At the present moment, the Italian banking system is reliable and healthy because the most important issues have been solved and the financial markets will probably react well because now there are better future expectations regarding the profitability of this sector.

Intesa Sanpaolo will certainly earn a lot from this acquisition because they bought the health part of the two Venetian Banks for only 1 euro while the riskiest assets will be managed by the government. The market trend can confirm the expectations of the shareholders and it is highly probable that the market share will continue to growth.

The decree law has been approved by the chamber and with a high probability will be approved also in the Senate.

In the matter of the negotiations between Intesa Sanpaolo and the trade unions (Fabi, First Cisl, Fisac Cgil, Uilca , Unisin-Sinfub and Ugl) there will be 4000 voluntary retirements. At least one thousands in the perimeter of the former Veneto Banca and Banca Popolare di Vicenza (completed in one year) and the other three thousands in the perimeter of Intesa Sanpaolo.

Exits will be managed through the Solidarity Fund with a maximum stay of 7 years for workers of Veneto banks and 5 for those of Intesa Sanpaolo. The first exit window is fixed on 1 October 2017. The pre-retirement age in Intesa and the Veneto banks includes all those who mature their pension requirements at December 31, 2022 and December 31, 2024 respectively.

Exits will be voluntary for all banks involved and for those of Veneto banks it has been decided to maintain welfare benefits for supplementary pension, health insurance, good meal and corporate agreements in force up to 30 June 2017.

For trade unions this is one of the most important agreements made in the sector because, as Mauro Bossola explains, “we have avoided layoffs and workers who until yesterday saw hard work compromised, obtaining in their favour guarantees on voluntary exits and even on second-tier bargaining, without leaving the employees of the Intesa Sanpaolo group. ”

Despite this, the question that people should ask themselves is not whether it is better to bail-out a bank with public money or not, but rather if our economy is a sustainable one because there are many other larger problems than the singular banking case.

Surely, the financial bubbles are an example of the inefficiency of our economies. The Dow Jones reached record values and now it is worth three times the capitalization that it reached before the housing bubble.

It is inevitable that another bubble will burst soon, this time generated not by banks, but by social media and students’ loans.

Comparing the balance sheet of the most famous app with their values in the Stock Exchange it is obvious that the markets doesn’t reflect the true value.

Moreover, the competition between students is always fiercer and for this reason they decide to go in the most famous and expensive Universities of the world, even if they cannot afford the University fees. They are convinced that with their work it will be easy to repay loans.

And what about the unemployment rate of our economies? Maybe with the right regulation all problems could be solved or maybe the problems come from the pillars of our economies.

What is sure is that, with the robots there will be soon a new industrial revolution, for surviving we must change our way of thinking and, most of all, how we organize the economic and financial environment.

The structural problems of the Italian and European economy are still numerous in addition to the banking problems. Cyclical crises are hard to contrast, and the whole system needs to be rethought from the point of view of its logic to ensure greater stability, efficiency and, partly, also development.

 

 

 

Matteo Spiller

The term Non-Performing Loans (NPLs) refers to impaired loans granted by lenders and represent exposures to entities unable to wholly or partly fulfil their obligations under the contract due to a worsening of the Their economic and financial situation.

According to various Bank of Italy analyses, what has hit the Italian economy most is the recession and the length of credit recovery procedures. The problem of impaired loans is a significant but certainly manageable problem and does not represent an emergency that afflicts all lenders.

As the Governor of the Bank of Italy said in the recent final considerations, this is a generally overstated phenomenon that needs to be properly framed.

Impaired Loans Criteria

To define impaired loans, it is necessary to consider the criteria published in 2013 by the European Banking Authority (EBA) that have been adopted by the Bank of Italy and harmonized at the level of the Single Supervisory Authority (SSM).

In particular, it is possible to further subdivide impaired loans into three sub-groups deriving from more severe situations: non-performing, probable defaults and overdue and/or overdue exposures.

Analysing in detail the three different categories it is possible to define the sufferings as exposures to insolvent subjects or in substantially comparable situations.

Probable defaults are exposures for which the bank considers unlikely that the debtor will fully comply with its contractual obligations without resorting to actions such as collateral security.

Exposures

Expired and/or overdue exposures can be defined as exposures that have expired or exceeded the limits of reliance for more than 90 days and beyond a predefined threshold of relevance.

In December 2016, NPLs amounted to €173 bn and were subdivided into non-performing loans of €81bn, probable defaults of €85bn and expired and/or overdue exposures of €7bn.

Between 2008 and 2014, there was a double recession that had a significant impact on the balance sheets of Italian banks, and in particular on the quality of their loans.

Recession in Italy

The considerable amount of impaired loans is the result of an exceptional recession that has hit the Italian economy in recent years and procedures for recovering bad debts.

In analysing the Italian banking system, it is evident that the recession caused by US subprime mortgages and structured finance products did not affect the financial system as the banks in the territory were under-exposed.

What has been significant has been the general deterioration of the client’s economic and financial situation, which has led to a significant increase in the rate of formation of new impaired loans and their consistency in the balance sheets of banks.

Sovereign Debt Crisis

Following the sovereign debt crisis in 2011, the client’s ability to repay debt has further reduced, resulting in a further increase in the rate of formation of new impaired loans and an increase in their consistency.

Finally, there was a negative relationship between credit growth and impaired loans between 2008 and 2015. This was mainly due to changes in the economic and financial conditions of the companies and the contraction in their demand for credit.

For lenders, the high stock of impaired loans has adverse effects on their financial statements as it tends to reduce revenue and raise the cost of the collection.

Consequently, the emphasis placed at international level on the subject, while being excessive, is not entirely unjustified, and is, in any case, a fact which cannot be considered pragmatically.

Fivefold Increase in Bad Debts

Between 2007 and 2016, the increase in bad debts recorded by significant intermediaries was on average more than 500% and was particularly high among the most virtuous intermediaries. In other words, the increase in consistency has affected almost all the intermediaries with a traditional business model.

Similar considerations can be made even if the analysis was carried out with reference to the trend of the relationship between the total of impaired loans and the loans to customers.

Analysing the situation at the start of the weaker banks’ crisis, i.e. with a ratio of gross impaired loans to total loans below average, it can be seen that they recorded data between two and three percentage points. The weaker ones, that is, with a higher than average ratio, stood at around seven percentage points.

High Non-Performing Loan Ratio

This report has peaked for the least of the weaker between 2014 and 2015, standing at 15-17%. For the latter, it has exceeded 35% between 2015 and 2016.

What can explain this latter negative is the shortcomings in credit policies and management practices.

Nevertheless, one should not overlook the effect that led to the contraction of assets in the evolution of these indicators. Harvesting capacity on markets has dropped dramatically due to the crisis of confidence.

Procedural Slack

In Italy, the time needed to close a bankruptcy is twice the average of other European countries, and this has compounded the effects of the economic crisis and the mismanagement practices of some banks.

If the time of civil justice had been in equal to the average European average, Italian banks would have a ratio between abnormal claims and jobs similar to the average recorded in European territory.

In other words, the problems related to the procedures accentuate during periods of economic recession.

Dealing with Impaired Loans

During the phases of strong growth in impaired loans, it is necessary to strengthen the courts, increase the number of magistrates and change the working methodologies.

If the characteristics and number of these organisms remain unchanged, the number of recovery procedures that will be possible to close in one year will be more or less constant. However, regardless of its causes, they are pushing it on the agenda at the European level.

This problem is daunting and difficult to understand to an outside observer because no measures have been taken to deal with it definitively. Recent steps taken by the government are helping to improve the situation, but are not a definitive solution.

Conclusion

So far it has to be said that the growth of abnormal games was also favoured by the modus operandi and the organisational behaviour of lenders who underestimated the complexity of the credit recovery process.

Matteo Spiller

Due to the unprecedented technological revolution, banks are rethinking the way they offer services. The smartphone has revolutionised people’s lives, and it now has central importance in the financial brokerage services. Giuseppe Vegas, an Italian politician and economist, delineated a system of disintermediating relations between those who demand money and those willing to lend. In a few years, it will be possible to carry out all banking operations through the internet thanks to fintech startups. Peer to peer lending is one example. The underlying idea behind this tool is disintermediation. That is, giving the possibility to private individuals to lend to other private individuals via corporate or social lending sites without going through the traditional channels represented by authorised financial intermediaries under Article 106 of the Single Bank Act, Legislative Decree No. 385 of 1993 (banks, financial companies, etc.).

This type of operation was initially developed in England by the Zopa website, which in 12 years has provided $800m in loans without resorting to bank credit. In this scenario, there are new opportunities, but also risks arising from insufficient regulation.

Keep Up or Be Left Behind

In a few years, all banks will have to rethink their business, which is already unprofitable, especially for Italy compared to other European Union countries. Consob President has repeatedly expressed his view on this. His opinion is that revolution could pose dramatic bankruptcy problems if adequate and rapid adaptation aren’t made. Moreover, fintech’s network moves into a sort of regulatory limbo that promotes action. This represents the exact opposite of what is happening in the traditional credit system that has been the object of regulations many times.

For these reasons, it is imperative to regulate all the new phenomena that are occurring. This must be done gradually and proportionately to accompany the emerging companies in their development through specific rules. If this principle will not be adopted in the regulation and if the same discipline applied to the financial system were applied today in the fintech, it would mark the end of all fintech companies. Shortly, fintech’s new reality with the old financial intermediaries will have to coexist, and this represents a vital challenge for the country and the industry. Any delay could result in a loss of competitiveness.

The Evolution of Fintech

According to Goldman Sachs’s Global Head of Fintech, Jeff Gido, three stages of fintech can be identified.

The first is the stage where startups are offered the services required by customers that were not offered by lenders. This occurred in the aftermath of the financial crisis and saw authorities, new technologies and consumer habits as protagonists. Also, after the financial crisis, the new regulations have made the bank businesses less lucrative, while large cloud and wireless service growth have allowed easier access to the banking world for startups.

In the second phase, banks realised that without innovation they could not survive in the long run due to the threat posed by startup businesses. They realised that fintech companies are trying to enter the core banking business, that is, banking, after having won the PayPal. That’s why they started to innovate using their brand and infrastructure to remain competitive on the market. Recently, Bank of America, Capital One, JP Morgan Chase, U.S. Bancorp and Wells Fargo have created Zelle, an instant payment service. Goldman Sachs has instead launched GS Bank, an online banking service.

Lastly, in the final phase, companies and banks will have to cooperate and not compete to avoid being crushed by tech titans like Google, Amazon and Facebook. Startups have the advantage of being able to innovate much faster than a bank can, but they cannot easily access data held by lending institutions and do not have the necessary financial resources. Banks’ weaknesses, on the other hand, are the main strength of startups, that is being able to capture new generations of clients. For this reason, many incubators are being promoted by the big financial institutions.

In addition, collaboration could be beneficial for both parties, such as cost savings for banks to build new technologies and the possibility to access to more resources for the startup.

Fintech in Europe

At the European level, this subject has already begun to be regulated. Recently, the European Union has amended legislation regulating the payment market allowing startups to access customer data from financial institutions. This legislation will enter into force in 2018, legitimising fintech as a respectable financial competitor to traditional institutions.

According to the Financial Times, most banks are concerned about security and the increase in their responsibility towards customers. The European Commission President Valdis Dombrovskis, on the other hand, believes that this will bring more competition, innovation and consumer benefits. Conquering millennials is the real challenge for lenders for the coming years because they are the main customer of the future due to the generational change.

Conclusion

Nevertheless, according to the American magazine Time, the behaviour of financial institutions concerning young people is still ambiguous. Jamie Dimon, the CEO of J.P. Morgan Chase has repeatedly tried to warn the banking world by saying, “Silicon Valley is coming up with innovative solutions in the thinking for a new consumer audience.” According to research conducted by Viacom, a multinational entertainer, 75% of American millennials would prefer to entrust their savings to companies such as Google or PayPal rather than depositing them at a traditional bank. Despite this, through mobile banking, the situation is changing, but startups continue to innovate faster and not allow banks to recover the gap. To do so, it is necessary to raise awareness among credit institutions on these issues so that they are more willing to invest in fintech. Resources, capabilities and tools are already available, now there is the only need of the willingness to understand the new ways to create value.

Changes could be introduced through mergers, acquisitions and incremental innovations that would help the gradual diffusion of the phenomenon without excessive upheaval. Issues such as turnover and redundancies have to be tackled and banks’ technological delays must be met in order to present more attractive plans for institutional investors.

Matteo Spiller

The recent performance of Tesla stock suggests that shares in the Silicon Valley company will continue to rise as the market rewards its innovation.

With global warming, fossil fuels and pollution at the centre of many debates, investors are increasingly interested in Elon Musk, who seems to be an entrepreneur with all the answers.

Musk dominates the industry not only due to his visionary ideas, but also because he has created one of the most important brands in the world, which further reinforces its position at the top. Tesla is ranked third, after Apple and Google, in the world’s Top 50 Most Innovative Companies. Consequently, Tesla enjoys near-monopoly status, although rivals are attempting to compete with the company.

Overpriced?

As this chart shows, Tesla already has the fourth largest capitalisation in the world. Elon Musk has revolutionised thinking about the future and in doing so created a company, which in just 10 years has reached a capitalisation equal to Ford Motors.

However, it should be noted that Tesla is a loss-making company and posted a loss of $397 million last year. Some economists think it is a financial bubble, citing the fact that although Ford and Tesla have equal capitalization, the former produced 76 million cars in 2016 while Tesla produced only 84,000, indicating that sales did not justify the exponential rise in share value. Perhaps the market is rewarding the brand and its innovative ideas. On the flipside, if the market loses confidence in Musk there could be dire consequences.

Tesla’s Energy Storage

In addition to these projects, others are equally striking. Examples include the Uber bus, and providing energy for entire cities through renewable energy. This last project was realised on Kauai Island, Hawaii where using 55,000 panels, they are providing the energy needed overnight with the largest storage system ever built. The next challenge is to increase energy storage capacity worldwide.

According to Bloomberg, Tesla has launched 5 different projects in the Pacific on Ta’u in American Samoa, Monolo Island in Fiji, and Kauai and Oahu islands in Hawaii.

Lyndon Rive, president for global sales and service at Tesla’s energy division, recently said it makes perfect sense to convert every island to a solar storage facility. Indeed, island micro-grids currently represent 36 percent of Tesla’s total power storage capacity.

In 2016, a total of 157 megawatt-hours of energy storage capacity has been installed and a further 17 megawatt-hours in the first quarter of 2017.

The Donald

Despite professing his support for fossil fuels, Trump is aware that sooner or later they will be replaced by renewable energy.

As a businessman, he will surely not try to interrupt a process that is already happening. However, he will probably ignore the Paris deal as he seeks to stimulate the American economy and prioritise energy jobs over environmental concerns. The US has invested heavily in oil reserves and the increase in renewable energy could cause billions of losses for the nation.

From an economic point of view, Trump will try to milk the economic benefit of these resources before they lose their value as the energy revolution takes place. He wants to remove regulation and bureaucracy so as to reduce energy costs. In addition, environmental constraints and climate policies that are seen as slowing the economy will be removed as he seeks to engage in energy policies that cut costs and boost energy security. The Environmental Protection Agency will be refocused on the core mission of protecting air and water.

Above all, Trump has set the goal of achieving energy self-sufficiency and no longer depending on OPEC or hostile nations.

Matteo Spiller