Italian Bank NPLs: Montecillo June 2016 News Digest

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  • The gripping saga of Italy’s NPLs proceeds apace, firstly with Unicredit’s alleged offer to put 1,5Bn Euros into rescuing Banca Popolare di Vicenza. Although Ghizzoni, the CEO and an old hand at Unicredit, claims the offer wasn’t binding, the Board appears to have taken exception to hearing about this commitment only when the Atlante fund had already stepped into the breach, since take-up had been only of ten percent. Ghizzoni’s resignation reveals a lack of succession-planning as demonstrated by the head-hunting now underway. The 1,5Bn offer would have put Italy’s largest bank in need of a capital increase of its own.
  • More recently, Brexit concerns have given Italian bank shares a welcome breather. The 1Bn capital increase of Banca Popolare is going well, with 300M raised from retail investors ahead of the June 23 merger with Banca Popolare di Milano.
  • For Veneto Banca things look bad, with 1% take-up, such that Atlante must come to the rescue once more. Having spent 1,5Bn for Banca Vicenza out of its 4,25Bn, 2,75Bn are left, or 1,75Bn after rescuing Veneto Banca. With 8 times leverage, this could purchase some 15Bn of NPLs.
  • Meanwhile Monte dei Paschi di Siena is preparing a platform into which an 80% investor might step in so as to manage 28 Bn Euros of NPLs with the bank holding 20%.
  • So time goes by, Atlante funds are running low, and nothing truly game-changing is happening. What is really needed is growth, but SMEs remain highly indebted and are the bulk of the NPL stock. Venture Capital spending in Italy is stuck at circa 100M euros per year…Italy recognized its NPL problem late compared to Spain and Ireland, and it is now paying the price for this, coupled with the slow recovery of debts through the courts.
  • Measures to get the NPL market moving need to reduce the bid-ask gap which remains stubbornly in place, since hedge funds offer 22% for credits that the banks have on their books for 47% of nominal value. Measures  to reduce the bid-ask gap could include the following:
    • Greater transparency on collections to reduce the risk premium in investors discount rate;
    • Quick access to electronic files showing underlying assets of secured loans;
    • Public data on the time taken by different Tribunals around the country;
    • Reducing the cost of capital as in the Treasury guaranteeing the senior tranche of bonds from Bank SPVs; (a step in the right direction, but still not enough)
    • Shortening recovery time- measures launched by the Government last summer are only forward-looking however, and do nothing for the existing pile of NPLs.

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