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Coping with covid: Italian family business stifled by global economy

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In this series, the Financial Times is following an Italian family-owned company through the pandemic crisis. After returning to work following the shock and trauma of Italy’s lockdown, in this third instalment Italy has managed to keep the virus under control for now but it is still spreading elsewhere — damping the company’s recovery.

In August, Francesca Masiero breathed a sigh of relief when her company’s revenues started bouncing back for the first time since Covid-19 wreaked havoc in northern Italy — and fast: after months of losses in the spring, during the worst of the country’s pandemic in the Veneto region, sales were up 49.2 per cent in August compared with the same period a year earlier.

But the respite proved shortlived for PBA, the manufacturer of door handles founded by her father Luciano in 1974.

September was stagnant. While the innovation, planning and design teams are keeping busy, the commercial squads are now facing a slowdown in the US, PBA’s main export market, and again in much of Europe, where the pandemic is resurging.

“During the most crucial phases [of the pandemic] we kept running and we are up to speed, but the world around us is in disarray. We are moving, but if the global economy stands still, we can’t go very far,” said Ms Masiero, PBA president, sitting in her office in the small town of Tezze sul Brenta, where the company is based.

Column chart of Revenues, % change year on year showing PBA's business suffered during the height of the pandemic
Francesca Masiero, president of PBA, in her office on September 23
Francesca Masiero, president of PBA, in her office © Filippo Venturi/FT

During the first phase of the pandemic, PBA has exemplified Italy’s resilience, a country whose economic strength is rooted in the hundreds of thousands of small export-oriented family-owned businesses like Ms Masiero’s. But that resilience is now being tested to its limits as the pandemic grinds on and a new surge in cases forces governments to reimpose restrictions on economic activity.

The Italian economy has shown signs of partial recovery after authorities relaxed strict measures intended to contain the spreading virus. The country is set to shrink less than the Spanish and the British economies this year, with manufacturing and retail forecast to bounce back more strongly.

But the world remains mired with risks: the eurozone’s output is not expected to recover to pre-crisis level until late 2022 and in the US, president Donald Trump falling sick with Covid-19 has injected yet another dose of uncertainty into the presidential campaign less than a month before the elections.

Even if Italy has managed to keep the virus in check so far, on Wednesday the government imposed a blanket injunction to wear face masks outdoors, in an effort to stop the rise in infections.

Line chart of Annual % change, by date of forecast showing Italy’s economic forecast for this year have been revised up
A production line at PBA’s factory in Tezze sul Brenta
A production line at PBA’s factory in Tezze sul Brenta © Filippo Venturi/FT

Ms Masiero said she had spent the lockdown that was gradually lifted from mid-April, one of the most stringent in any western democracy, investing in more technologically advanced, and therefore more expensive, products. The plan was funded by savings and an unusually strong first quarter.

“We can’t afford to live in a bubble,” the 48-year-old said. “Every day the situation becomes more and more complex, with the health crisis weighing on economic activity, and the economic activity heavily relying on science.”

Daily cases in Italy are now on the rise — 3,678 on Wednesday, from the low hundreds in June when restrictions started easing — but life feels almost normal for PBA’s employees.

Schools, theatres and gyms have reopened. In the main square of the medieval town of Bassano del Grappa, a few kilometres from PBA where Ms Masiero and other employees live, restaurants and bars are full, although people are still social distancing and wearing masks indoors. Residents enjoy walks in the countryside and run along the river Brenta.

Rosanna Bizzotto, PBA chief financial officer, recently took a train to Venice with her family for the first time. “It was regenerating to be out with people.”

PBA’s corridors brim with noise again. Around the coffee machine, some employees, diligently spaced out, are chatting during their break. More time slots have been added to training sessions to avoid overcrowding, and new workstations brought in.

The company has kept all of its 120 employees, tapping government aid to cover three hours a week per worker. It was able to bring designers who finished their trial periods on to permanent contracts. “We are finally enjoying being here together. Let’s just hope it lasts,” said Luigino Toniolo, one employee.

PBA’s design department has been busy even as sales have been weak
PBA’s design department has been busy even though sales have been weak © Filippo Venturi/FT
Erica Anesi in her office
Erica Anesi in her office © Filippo Venturi/FT

PBA is focusing on new products such as bathroom accessories and door handles in stainless steel and copper, favoured for its natural antimicrobial properties, and casings for hand sanitiser. Some have already been installed on construction sites served by PBA in the US.

Like most businesses in the region, PBA relies on a network of small local suppliers. This has proved to be a strength, even though most of them had to close at the peak of the first outbreak, and struggled to cover rent and machinery maintenance costs when they reopened. PBA had to pay more for materials during this period, but it never ran short.

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“We have not had any major problems with our suppliers here, because they are close to us [and] we developed a personal relationship over the years, ” Ms Masiero said. “They were more than happy to open and work exclusively for us when other clients weren’t fully operational.”

But this falls short from counteracting weak demand abroad. “The more the pandemic spreads across various countries, the more complex everything becomes . . . with a rise in nationalism and potential restrictions to trade,” said Stefano Zen, a senior manager.

Clouds are gathering again but Ms Masiero remains positive: “It wouldn’t be ideal, because we still believe human interactions are essential, but if there’s another lockdown tomorrow we are ready to be fully operational from day one.”

Additional reporting by Valentina Romei in London



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ECB signals rising concern about eurozone bond market sell-off

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The European Central Bank has indicated it will increase the pace of its emergency bond purchases to counter the recent sell-off in eurozone sovereign debt markets if borrowing costs for governments, companies and households continue to rise.

Philip Lane, chief economist of the ECB, said on Thursday that the central bank was “closely monitoring the evolution of longer-term nominal bond yields” and its asset purchases “will be conducted to preserve favourable financing conditions over the pandemic period”.

The ECB has pledged to ensure financial conditions encourage investment and spending, helping the eurozone economy to make a swift recovery and lifting inflation towards the central bank objective of just below 2 per cent.

To achieve this, Lane signalled that it would rely on its pandemic emergency purchase programme, under which it plans to spend up to €1.85tn on buying bonds by March 2022. There is just under €1tn of that amount left to spend.

“We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation,” he said.

Eurozone government bonds fell to their lowest levels for almost six months this week, and while Lane’s comments caused a brief rally on Thursday afternoon, prices then resumed their downward path.

Bond yields move inversely to prices, so the sell-off is pushing up the cost of borrowing for governments, which must sell vast amounts of extra debt this year to cover the cost of the coronavirus pandemic and its consequences.

Germany’s 10-year bond yield has risen to its highest level since last March, while the French equivalent returned to a positive yield for the first time since June and Italian sovereign yields hit their highest level since November.

ECB president Christine Lagarde said in a speech on Monday that policymakers were “closely monitoring” the rises. 

Isabel Schnabel, another ECB executive board member, said in an interview with Latvian news agency Leta published on Thursday: “A too-abrupt increase in real interest rates on the back of improving global growth prospects could jeopardise the economic recovery.”

Lane gave more detail of how the ECB defines “favourable” financing conditions, saying it would track the availability and cost of bank lending and market-based funding — in particular, the risk-free overnight index swap curve and the GDP-weighted eurozone sovereign bond yield curve, which have both risen in recent days.

He warned of the need to avoid “a mutually-reinforcing adverse loop” in which banks interpret lower borrowing demand as a negative signal about the economy and companies interpret a tightening of bank lending conditions as a worrying sign about the outlook. 

Eurozone bank lending to the private sector grew by just under €12bn in January, down 75 per cent from the average monthly loan growth last year according to data published on Thursday.

Much of the slowdown was because of a sharp fall in net lending to insurers and pension funds. Lending to non-financial companies also retreated slightly, while lending to households still grew but at its slowest rate since last April.

Krishna Guha, vice-president at Evercore ISI, said “ECB jawboning” was “having little effect” and “the next step — in our view presaged by Lane — is for the ECB to dial up the pace of its [bond] purchases”.

Last week the ECB spent a net €17.3bn on its emergency bond purchase programme, up slightly from the previous week but still well below the levels of last April, during the previous sell-off in government bond markets.

Frederik Ducrozet, strategist at Pictet Wealth Management, said the ECB was likely to wait until it was clear the bond market sell-off was a lasting shift before increasing its emergency bond buying above €20bn per week. But he said that “will bring the risk of disappointment [for investors] — because you have to walk the walk as well as talk the talk as a central bank”.



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Armenia’s prime minister claims military is plotting a coup

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Armenia’s prime minister has claimed the country’s military is plotting a “coup,” and taken to the streets with his supporters after senior army figures in the former Soviet republic called on him to resign.

Nikol Pashinyan has faced months of protests demanding he step down after the defeat of Armenian forces in a six-week war with neighbouring Azerbaijan that ended in November.

The army weighed in on Thursday, calling on the prime minister to quit after he fired the first deputy chief of staff for criticising him.

A letter to the prime minister signed by 40 senior officers warned Pashinyan not to use force against demonstrators, but did not say whether the army would act to remove him from power.

“The current government’s ineffective management and serious mistakes in foreign policy have put the country on the brink of collapse,” the officers wrote on Facebook.

Pashinyan later fired the chief of the general staff, Onik Gasparyan, ordered police to secure government buildings in Yerevan and told his supporters in the capital’s Republic Square to avoid violent clashes.

Demonstrators at an opposition rally in Yerevan demand the resignation of Nikol Pashinyan. They cheered as a fighter jet flew overhead © Artem Mikryukov/Reuters

Describing the situation as “manageable” the prime minister denied he was planning to flee the country and said the army’s statement was an “emotional reaction” to a dispute over the defeat in the Nagorno-Karabakh conflict.

“We have no enemies in Armenia. I am calling for calm,” Pashinyan said, according to Russian news agency Interfax. “Of course, the situation is tense, but we need dialogue, not confrontation.”

He later took to the streets with several thousand supporters and a megaphone — an echo of the 2018 “velvet revolution” that swept him to power following a march across the country that galvanised popular support. A few thousand opposition supporters gathered at a different square and cheered as a fighter jet flew overhead.

Pashinyan has fought off calls for his resignation since signing a Moscow-brokered peace deal in November that cemented territorial gains for Azerbaijan in Nagorno-Karabakh. The mountainous enclave in the South Caucasus is internationally recognised as part of Azerbaijan, but is populated by ethnic Armenians who seized control after a war that broke out in the dying days of the Soviet Union.

Azerbaijan, a mostly Muslim country and a close ally of Turkey, launched an offensive in September with the aim of retaking the entire enclave. Armenia’s army was ill prepared for oil-rich Azerbaijan’s modern drone fleet and significant backing from Ankara.

More than 3,300 Armenian soldiers died in the conflict, with a further 9,000 wounded. Thousands of civilians were displaced, including some who set their own homes on fire as they fled land now under control of Azerbaijan.

Russia, the traditional regional power broker and Armenia’s most important ally, remained neutral even as several previous ceasefires failed and has deployed 2,000 peacekeepers to secure the region.

Pashinyan admitted the terms were “unbelievably painful for me and my people” but argued the concessions were necessary to prevent further losses.

The devastating defeat sparked fury among Armenians who stormed the country’s parliament and attacked its speaker, demanding the prime minister’s resignation.

Pashinyan backtracked on a pledge to step down after snap elections earlier this month and remained in office in the face of opposition from Armenia’s ceremonial president, three parliamentary opposition parties, and key church leaders.

The Kremlin said on Thursday it was “following events in Armenia with caution” but considered them “exclusively Armenia’s internal matter”.

Dmitry Peskov, President Vladimir Putin’s spokesman, told reporters Russia was “calling on everyone to be calm” and said “the situation should remain within constitutional limits,” according to Interfax.



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German accounting watchdog chief to step down in wake of Wirecard

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The head of Germany’s accounting watchdog is to step down following mounting political pressure over corporate governance shortcomings exposed by the Wirecard fraud.

Edgar Ernst, the president of the Financial Reporting Enforcement Panel (FREP), said on Wednesday he would depart by the end of this year. He is the third head of a regulatory body to lose his job in the wake of one of Germany’s biggest postwar accounting scandals.

The collapse of Wirecard, which last summer filed for insolvency after uncovering a €1.9bn cash hole, triggered an earthquake in Germany’s financial and political establishment.

Felix Hufeld, president of BaFin, the financial regulatory authority, and his deputy Elisabeth Roegele were pushed out by the German government in January for failing to act on early red flags suggesting misconduct at Wirecard. Ralf Bose, the head of Germany’s auditors supervisor Apas, was fired after disclosing he traded Wirecard shares while this authority was investigating the company’s auditor, EY. The German government is also working to revamp the country’s accounting supervision and financial oversight.

Meanwhile, criminal prosecutors in Frankfurt are evaluating a potential criminal investigation into BaFin’s inner workings and on Wednesday asked the market authority to hand over comprehensive documents, the prosecutors office told the FT, confirming an earlier report by Handelsblatt. The potential scope of any investigation as well as the individuals who might be targeted is still unclear. BaFin declined to comment.

Ernst came under pressure as the parliamentary inquiry commission uncovered that he joined the supervisory board of German wholesaler Metro AG in an apparent violation of internal governance rules, which from 2016 banned FREP staff from taking on new supervisory board roles.

Last week, the former chief financial officer of Deutsche Post filed a legal opinion to parliament defending his move. He argued that his employment contract was older than the 2016 ban on board seats and hence trumped the tightened governance regulations.

The German government had subsequently threatened to ditch the private-sector body which currently has quasi-official powers.

In a statement published on Wednesday evening, FREP said that Ernst wants to open the door for a “fresh start” that would be untainted by the discussions around his supervisory board mandates. “FREP is losing a well-versed expert in capital markets,” the body said.



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