UNICREDIT SPA Economy Minister Pier Carlo Padoan met the Bank of Italy on Friday to accelerate the plan, according to one official. Rome is talking to the European Union to make sure the new company does not violate the bloc's state aid rules.
Rome does not want a significant direct stake in the new entity. But the state would guarantee bonds issued by the company to raise funds to buy the bad loans, the officials say. "The state's role will be limited and in line with EU rules," Padoan said this week.
Helping banks offload bad loans is part of Italian Prime Minister Matteo Renzi's efforts to revive one of the sickest economies in Europe.
Italian banks are sitting on some 330 billion euros (244 billion pounds) of credit likely to be repaid late or not at all, according to the International Monetary Fund. The amount -- worth 20 percent of Italy’s yearly output -- has tripled since 2007. Of the total, 180 billion euros is in or close to default.
A prolonged recession has left companies and individuals unable to repay debts. Lengthy bankruptcy procedures and tax laws in Italy make it hard for lenders to sell souring credit, as banks elsewhere do. The result: banks have turned off their taps, further squeezing a limp economy.
Government officials hope that if banks offload bad loans, lending will increase. At the same time, Rome doesn't want to be seen helping a sector many voters blame for causing the financial crisis. Offering state guarantees to the new so-called "bad bank" could ultimately put taxpayer money at risk.
"Giving banks a gift is out of the question," Sandro Gozi, cabinet undersecretary said this week.
Italy's top two lenders, Intesa Sanpaolo (>> Intesa Sanpaolo SpA) and UniCredit (>> UniCredit SpA), are also resisting the plan. They don't want the stigma of being associated with a state-backed plan. And if the loans turn positive, they want to reap the benefits directly. Unicredit recently sold 2.4 billion euros of non-performing loans to U.S. investment firm Fortress.
STATE GUARANTEES
Smaller banks could benefit, however. "I would certainly not shy away," from a bad bank, Banco Popolare Chief Executive Pier Francesco Saviotti said. The bank ended 2014 with 22 billion euros in souring loans.
Under the plan being hatched by the Italian government and the Bank of Italy, the new bad bank would be owned by Italian lenders or other investors. The state would take at most a small stake, government officials say.
The company would start with some 3 billion euros in capital and could eventually buy around 50 billion euros of bad loans, said one person with knowledge of the plan.
To buy bad loans, the company would issue bonds guaranteed by the state, the officials said. Alternatively, the state could guarantee bonds issued to securitise the bad loans. Rome is also considering guarantees for other companies that sell bad loans.
Andrew Jenke at KPMG Global Portfolio Solutions Group says the scheme's success depends on the price at which the loans are offloaded. “Will the banks sell at their book value, or at the market price?,”
Europe's most notable experiment with a bad bank was in Spain. As part of a Spanish financial bailout in 2011, Madrid created a partly state-owned company with 51 billion euros in risky loans accumulated during the country's real-estate collapse. Investment firms are marketing and selling the assets.
Due to bad loans, Italy fared badly last year in the European Central Bank's health-check of the region's banks. Rome is now stressing to Brussels that the goal of the proposed bad bank is not to rescue any lender, rather to unleash growth.
(additional reporting by Andrew Winterbottom and Anna Brunetti.)
By Giselda Vagnoni and Alessandra Galloni
