Bad Italian Post Office Bonds

An Italian Postbox

An ill wind is blowing from the direction of the Italian post office service, and said bad wind emanates from a quietly brewing storm.

Apparently, such storm may well blow away around 400 million Euros belonging to some 70,000 investors who have acquired ‘triple A’ bonds.

Italy’s consumer’s association believes that these 10 year bonds will be virtually worthless when they come up for redemption.  And there’s more, and the hint of a cover up.

There are also discussions on this subject on the Italian web.

Worldcom Worries

The collapse of the giant American company Worldcom, which took place a few years back, dented the value of the Italian Post office bonds considerably.  Indeed, the bonds have lost approximately half of their value.  Things are not looking too good.

Post Office Cover Up?

There seems to be a connection between the falling value of these post office bonds and the collapse of the Lehman Brothers bank, although at the time, Le Poste Italiane told worried investors that there was nothing to be worried about.

However, if this is the case, how come the Italian Post office seems to be doing its best to hide the problems through restructuring operations?  Which it is, according to the Italian Consumers Association.  The association has appealed to Italy’s finance minister Giulio Tremonti to intervene and demand that that Poste Italiane states that it will absorb any losses.

Post Office Misjudgement

The plot thickens.  According to an article over on Italian soldi blog.it, the post office had misunderstood the safety of these bonds, which it stated carried a 3A rating.

This rating usually means such bonds should be a safe investment.  But, one Ken Gill, of Fitch Ratings, reportedly said that the bonds being offered by the post office should never have been offered as a retail product owing to their extreme sophistication.

What Next?

This is not clear just yet, but fears are mounting that the people advised to take on this ‘safe’ investment will lose substantial sums of money.  Bearing in mind that the Italian post office is a predominantly a state-owned company, if people do lose money it will make Italy’s government look pretty bad, but if the post office decides to bite the bullet and absorb all the losses, the Italian tax payers will have to stump up the cash.

Then again, the Italian tax payers stumped up plenty of cash to help sort out ailing Italian airline Alitalia, so they will not mind stumping up a little more.  Well, they might, but they, sorry we, will have little choice.

An article in Italian on this can been seen here:  Polizze index di Poste Italiane…i soliti sospetti