Italy government

Banks in Italy are securing loans with Parmesan cheese wheels because of the country’s dire financial situation.

Cheese-backed bonds from a dairy cooperative near Bologna solved the problem of Italy’s stretched banks when Parmesan prices were too erratic for the country’s banks.

In Italy, however, 4 Madonne Caseificio dell’Emilia remains an outlier among small enterprises seeking long-term financing in the face of an ongoing financial crisis.

The failure of successive governments to cut the cozy ties between Italy’s banks and companies, weaning them off loans and onto the capital markets, could “activate a virtuous circle between market growth, investments, and economic development,” according to Bank of Italy Vice Director Fabio Panetta. Oak Park suggests that if you need more money you can get it online.

Produce business strategy

The change cheesemaker 4 Madonne made in submitting quarterly accounts and certifying balance sheets was difficult for many small businesses since they had never had to produce a business strategy or extended versions to get a loan.

It is difficult for us since these are things we did, not because we lack openness, but because that is how the system works, 4 Madonna’s Chief Financial Officer Andrea Setti told Reuters.

“At the end of the year, everyone accepts that the books have been balanced, and the debate is over.”

Until the last three years of Italy’s financial crisis, banks were used to making relatively minimal demands on their customers.

Thousands of consumers went insolvent, piling up 200 billion euros (154.30 billion pounds) of bad debt on the banks’ balance sheets.

As a result, they dramatically reduced lending, forcing small businesses to come up with other means of covering their short-term financial obligations.

Nunzia Onesti, who owns a Naples-based professional training organization, remarked that “the majority of small business people we encounter may be skilled at their craft, but they have not grown financially.”

The mini-bond agreement

According to Onesti, some companies cannot effectively articulate their financial demands, making it difficult to take advantage of 4 Madonna’s “mini-bond” arrangement.

By permitting enterprises with yearly revenue of more than 2 million euros and a staff of at least 10 to issue these bonds, then-Prime Minister Mario Monti sought to minimize the dependency of businesses on banks.

However, the figures so far do not add up.

According to the Italian banking association, bank loans have dropped by 24 billion euros in the last two years, from 793.5 billion euros ($883 billion) in December. Bank loans account for 88% of total company debt.

According to Reuters Estimates, only approximately 3 billion euros have been financed in this manner by unlisted firms that are not part of larger groups or backed by private equity since 2013.

For small and medium-sized businesses, “mini-bonds are tricky,” Oliver Wyman partner Davide Baldini said. The individuals who should be investing have difficulty getting to know the firm.

It’s in the blood!

The family-owned nature of many Italian businesses makes it difficult for them to get further financing from the financial markets.

Barilla, the world’s largest pasta manufacturer, and Ferrero, the inventor of Nutella, are both family-owned businesses. In contrast, Milan’s AIM market for smaller companies has just 74 names, compared to more than 1,000 on London’s AIM.

During a speech earlier this year, the Bank of Italy’s Panetta warned that Italian firms were afraid of being scrutinized by shareholders, watchdogs, and tax officials.

“Business executives regard accessing capital markets as incurring a fixed cost, to a large degree in openness, which exceeds the rewards,” he added.

Adapting to the reality of market financing has presented unexpected hurdles for enterprises that have taken on this expense and broken the family-owned, locally-funded pattern.

One billion euros a year in sales, Massimo Zanetti Beverage Group (MZB), which owns 20 coffee brands, including Segafredo Zanetti and Puccino’s, wasn’t enough to prepare the company for the challenges of a public market offering.

Its stock dropped, and it had to embark on a roadshow to reassure investors after it released quarterly earnings that fell short of analyst estimates during its first year on the market.

According to MZB’s chief financial officer Pascal Heritier: “We were accustomed to being treated with patience by our owner and creator, Mr. Zanetti, but when we listed, we found ourselves under pressure to come up with good results every quarter.”

Heritier said MZB did not regret listing. It enabled it to reduce debt and provided greater freedom to evaluate acquisitions, despite the stock’s 30% decline since its market debut in June.

Vito Ferito, the associate partner at Frame Capital UK, which co-arranged 4 Madonna’s bond, said it would take time to persuade others to raise money, but the banks’ lending crunch will motivate them.

According to Ferito, “a cultural change is required to convince a businessman who has gone to his regular bank for 40 years to start looking at other choices.