By Elisa Martinuzzi
Dec. 11 (Bloomberg) — San Marino, a country the size of Manhattan, may sell international bonds for the first time to help its banks withstand an exodus of deposits amid a global crackdown on tax havens.
As much as 5 billion euros ($7.4 billion) of San Marino’s 13.6 billion euros in bank assets may flow out, mostly to Italy, according to estimates by The European House-Ambrosetti, a research company.
San Marino was hit by a Group of 20 crackdown on tax havens just as its biggest bank became embroiled in a money-laundering scandal and Italians were offered an amnesty to bring home undeclared funds held abroad. Mirroring steps taken by havens such as Lichtenstein, it responded by signing several international tax accords, and in September was removed from the Organization for Economic Cooperation and Development’s “gray list” of countries that don’t sufficiently share tax data.
A hilltop town that bills itself as the world’s smallest and oldest republic, San Marino also got tougher on cash flows and gave banks access to central-bank funds. Now, it may borrow from lenders abroad and sell bonds to support the 1.3 billion- euro economy, a fifth of which is based on banking.
“Seeking credit lines and selling bonds are among the possibilities we’re considering,” Gabriele Gatti, secretary of state for finance, said in an interview. “We don’t want to lean on the state’s liquidity.” San Marino, with a population of 31,300, has about 280 million euros of cash, he said.
Liquidity Crunch
The G-20 of industrial and emerging nations has taken aim at tax havens in its efforts to fight the worst financial crisis since the Great Depression. Like havens such as Liechtenstein and Switzerland, San Marino has sought to cooperate, striking 14 tax-information exchange accords even as it has yet to sign one with its only neighbor, Italy.
Italians have so far repatriated about 2 billion euros from San Marino under the amnesty that expires on Dec. 15, Gatti said. The outflows may trigger a liquidity crunch, said Eral Yilmaz, an analyst at Fitch Ratings, which in October cut San Marino’s rating two steps to A with a negative outlook.
The case involving the arrest in May of executives of Cassa di Risparmio delle Repubblica di San Marino SpA on money- laundering allegations and the Italian amnesty “will remain a cause for concern, raising questions about potential sovereign support,” Yilmaz said. San Marino, which had a budget surplus in 2008, will run a deficit this year, she estimates.
Gatti said San Marino may apply to join the European Economic Area, which allows Iceland, Liechtenstein, Switzerland and Norway to take part in the EU’s single market. Still, the country can’t rely on support from the European Central Bank, though the euro is its official currency. Nor is neighboring Italy obliged to step in, either.
Two of the top four banks have Italian owners they can turn to. UniCredit SpA, Italy’s biggest bank, owns 85 percent of Banca Agricola Commerciale della Repubblica di San Marino, or BAC, while Cassa di Risparmio di Rimini SpA, Carim, owns Credito Industriale Sammarinese SpA.
A spokeswoman for UniCredit said BAC posted net income of 15.3 million euros in the nine months through Sept. 30. She declined to comment on the fourth quarter.
Banking Doubts
“In the long term, the country’s business model is in question. Banking has been the fastest-growing component of its economy and it’s not clear if anything will take its place,” Yilmaz said in an interview. “Even once this financial crisis is over there will be a period of sluggish growth.”
About 19 percent of San Marino’s gross domestic product last year came from banking and insurance, data from the San Marino statistics office show. GDP may contract 4.6 percent this year and as much as 5.2 percent in 2010, Ambrosetti data show.
San Marino, a 23-square mile republic near central Italy’s Adriatic coast, passed legislation on Nov. 30 giving its banks access to central-bank liquidity for the first time. Gatti said that as of last week, no banks had asked for aid. Officials at the central bank declined to be interviewed.
Cassa di Risparmio is negotiating with Intesa Sanpaolo SpA to sell its consumer unit Gruppo Delta, Tito Masi, chairman of the foundation that controls the San Marino bank said last month. The banks are looking at whether Delta has enough funds set aside for risky loans, he said. “We’re talking millions not billions” of euros, Masi said on Nov. 20.
Delta
Delta owes banks 3.4 billion euros, Il Messagero reported on Dec. 5, citing unidentified officials.
San Marino in June introduced rules on cross-border cash movements, requiring declarations for amounts over 10,000 euros. After it banned the issuing of new bearer passbooks in September, Moneyval, a Council of Europe committee that monitors nations’ use of criminal proceeds, removed the country from an enforcement procedure.
“Sovereignty means being serious and meeting international obligations,” Gatti said at a conference last month.
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