MONTEBELLUNA, Italy—For the people of Montebelluna, in Italy’s prosperous northeast, the 139-year-old Veneto Banca was not a faceless lender, but part of the community.
Deals were made in the local dialect. Cash was dropped off with a friendly wave and investment accounts passed on through generations. Loans were offered easily and when the bank needed help, it could count on long-time clients to buy its shares.
“We believed in this institution. It was part of the territory,” said Walter Baseggio, who borrowed money for his auto dealership and house while investing the lion’s share of his savings in the bank.
Then in 2015, this near-feudal network of mutual support came crashing down. Veneto Banca’s share price dropped to pennies and 87,000 shareholders lost 4.5 billion euros (C$6.2 billion). The bank eventually got a state-organized rescue.
Similarly cozy relationships between banks and customers as well as lax regulation in much of the rest of Italy have spawned a banking crisis that is bleeding the economy. The banks are saddled with 360 billion euros in soured loans, a massive amount that is keeping them from lending enough for the economy to get going again.
Italy’s economy has not grown since a decade ago. Unemployment is around 12 percent, and almost 40 percent among the young.
And it could get worse, analysts say. Veneto Banca and others could need more help if the government of Premier Matteo Renzi collapses after a popular vote this Sunday on constitutional reforms. Shares were down sharply this week on fears that Renzi could lose the vote.
First Signs
Trouble at the co-operative bank started to become apparent years before it needed a rescue this year. The recession that began in 2008 shrank the economy by 10 percent and the manufacturing sector by a quarter. Businesses were in distress and unable to repay loans.
Baseggio wanted to sell shares in 2014—then worth 39.50 euros each—to raise cash to help his children, but was told he couldn’t because the accounts were being reviewed. They offered him a loan.
