In Italy, Parmesan as Collateral for Bank Loans
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By ALESSANDRA MIGLIACCIO and FLAVIA ROTONDI
Published: August 13, 2009
MONTECAVOLO, ITALY (Bloomberg News) — The vaults of the regional bank Credito Emiliano hold a pungent gold prized by gourmands around the world — 17,000 tons of parmesan cheese.
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Video Bloomberg Video: Cheesy Collateral at Italian Bank
The bank accepts parmesan as collateral for loans, helping it to keep financing cheese makers in northern Italy even during the worst recession since World War II. Credito Emiliano’s two climate-controlled warehouses hold about 440,000 wheels worth €132 million, or $187.5 million.
“This mechanism is our life blood,” said Giuseppe Montanari, a cheese producer and dealer who uses the loans to buy milk. “It’s a great way to finance our expenses at convenient rates, and the bank doesn’t risk much because they can always sell the cheese.”
So precious is the cheese that each wheel, weighing 80 pounds, or 36 kilograms, and worth about €300, is branded with a serial number so it can be traced if it is stolen. Thieves tunneled into one warehouse in February and made off with 570 pieces before they were apprehended by the police.
“Thank heavens we caught the robbers before they grated it,” said William Bizzarri, who manages the warehouses.
Nestled in the valleys of the Emilia-Romagna region southeast of Milan, Credito Emiliano has been using parmesan as collateral since 1953, entrusting management of the cheese to a unit called Magazzini Generali delle Tagliate.
Mr. Bizzarri said the bank offered loans for as long as 24 months, equal to the time it takes the parmesan to age, at the euro interbank offered rate plus 0.75 percentage point to two percentage points. The bank gives producers as much as 80 percent of the value of the cheese, based on current market prices.
“Parmesan cheese has been used for financial operations since the Middle Ages,” said Leo Bertozzi, head of the Parmigiano-Reggiano Producers’ Association. “This is both due to its value, since each compact wheel holds the equivalent of 550 liters of milk, and the fact that aging takes years, making financing necessary until the product can be sold.”
The bank considered taking prosciutto, another of the region’s specialties, and olive oil as collateral but such products were harder to store and brand, Mr. Bizzarri said. “It’s easier to steal or replace them,” he said.
Emilia-Romagna is the only area in the world legally allowed to use the parmigiano-reggiano name for the hard, dry, skim milk cheese that was first made in the region around 1200. Sales of parmesan totaled €1.54 billion in 2008, 25 percent from exports, according to the producers’ association.
Once the bank accepts cheese as collateral it oversees the aging process, which includes turning the wheels several times a week and checking periodically for cheeses that have gone soft. As a master tester taps each cheese with a small metal hammer, Mr. Bizzarri listens for hollow sounds that would indicate the wheel is a “dud” and result in its disposal.
Most wheels pass the test, said Mr. Bizzarri, who sold financial products and managed bank branches before taking over the cheese unit. After a year they are branded with the parmigiano-reggiano logo and serial numbers and tags.
When loans are not repaid, Credito Emiliano sells the cheese to recover its investment, returning any difference to the producer. This makes the operation low risk for the bank, Mr. Bizzarri said, adding that few producers defaulted.
Producer prices for parmesan averaged €7.27 a kilogram, or $4.70 pound, in July, down from €7.49 in January, according to data from the producers’ association. Prices peaked at €9.36 a kilo in January 2004. “Fortunately, prices have now stabilized and while the global economic crisis remains a concern, consumption, including sales abroad, is holding up,” Mr. Bertozzi said.
Credito Emiliano has almost 6,000 employees and 590 branches, mostly in central and northern Italy. Net income fell 75 percent in the first quarter to €11.8 million on lower commissions and trading losses of €33 million.
While cheese accounts for less than 1 percent of the bank’s revenue, the unit is important because it helps keep parmesan makers in business, bolstering the local economy, Mr. Bizzarri said.
Italy is facing its fourth recession in seven years, with the economy likely to shrink 5.3 percent this year, the worst contraction on record, according to the Italian research institute Isae.
“The government has been asking banks to help the economy and keep lending, but credit quality is a problem these days,” said Edoardo Liuni, an analyst at IlNuovoMercato in Rome. “With this system, defaults are less likely.”
While other local banks have at times had similar programs, and larger institutions sometimes accept high-value goods like art as collateral, Credito Emiliano is the main bank offering loans to Italy’s 429 parmesan producers, Mr. Bizzarri said.
“It’s not our main source of funds, but it helps producers and shows there are more ways than one to keep doing business,” he said. “Let’s say it’s a way to put our heritage to good use.”
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