The Strategist

Italian strongest banks to bail out lame-ducks

04/12/2016 - 13:02

The strongest Italian banks, insurers and asset managing companies agreed with the authorities to establish a fund with volume of € 5 billion. These funds will be used to assist the poor credit institutions.
The decision was made amid growing investors’ anxiety about stability of the banking sector belonging to the eurozone's third largest economy. In particular, concerns are triggered by a possible effect of non-performing loans on Italy’s financial stability: the amount of "bad" debts is € 360 billion. The sector’s stability, in addition, has been threatened due to the drop in prices of Italian banks’ shares happened at the beginning of 2016.

The fund was named ‘Atlante’ in honor of the Greek mythological titan, holding the vault of heaven on his shoulders. Italy's largest banks, such as UniCredit, Intesa Sanpaolo and UBI Banca, will have to invest hundreds of millions of euros to support troubled lenders with the fund’s help.

It is important to note that in exchange for the private foundation’s establishing, the Italian Government has agreed to bring the legislation in the field of bankruptcy in conformity with European standards. This is expected to facilitate the sale of "bad" loans to Italian banks.

"In the coming days we will make a bankruptcy procedure quicker and easier, so that each investor can get their money back within a reasonable time", - stated the Prime Minister of Italy Matteo Renzi.

The fund, which will be managed by Quaestio Capital Management company, is designed to bail out those banks, which lost ability to attract equity capital on the open market, or cannot sell the "bad" loans portfolio.

Creation of such a fund should reduce the amount of non-performing loans in the banking sector, and support the recapitalization of weak financial companies. These measures are required by the European Central Bank.

On Monday, the bank shares rose sharply. The value of shares of Banca Monte dei Paschi di Siena rose by 9,8%, UniCredit’s - on 2,4%, Intesa Sanpaolo’s - by 1.7%.

Earlier, Finance Minister Pierre Padoan and the European Commissioner for competition Margrethe Vestager signed an agreement which allows the state to provide assistance to Italian banks in the sale of ‘bad loans’ portfolios. The politicians agreed that this was certainly a step in the right direction.

"Banks will be able to receive state guarantees in the process of securitization and sale of non-performing loans, which are now in their balance sheet, to autonomous structures, - the EC declared. - Guarantees will be provided on a market basis and, as a consequence, will not be considered state aid."