Italy Bad Bank Sparks U.S. Investor Interest, Renzi Aide Says

  • Italian, foreign investors interested in buying NPLs
  • Italy government wants to minimize taxpayer money in bad bank

U.S. investors have shown “an especially keen interest” in buying non-performing loans once Italy sets up a bad bank, Filippo Taddei an economic adviser for Prime Minister Matteo Renzi said in an interview.

“I haven’t met a single investor who wouldn’t be interested in buying NPLs once some sort of ‘bad bank’ arrangement is put in place,” Taddei, who is also the economic spokesman for Renzi’s Democratic Party, said in an interview in Bologna, Italy. “Interested parties range from hedge funds to institutional investors, both Italian and foreign.”

Italy is seeking to speed up banks’ disposals of bad loans to free up resources for lending by setting up a so-called bad bank. The government is in talks with the European Commission to find a solution that complies with state-aid rules, because the vehicle that will buy problematic loans from lenders might be financed by government-backed bonds.

Some investors would prefer that state-guaranteed bonds be eligible as collateral at the European Central Bank for credit operations.

“Clearly, if they were fully guaranteed by public money, they would be eligible as collateral because they would be in all respects like government debt,” Taddei said. “I think it is out of the question that NPLs will have a full public guarantee.”

Italy will try to minimize the pledge of public money in a bad bank, according to the official, referring to concerns about compliance with state aid expressed by EU antitrust chief Margrethe Vestager last week in Rome.

Central bank data issued last week showed bad loans reached a high of 197 billion euros ($223 billion) in July. The rising stockpile is hindering banks’ ability to expand lending and holding back the country’s recovery from a record-long recession. Renzi’s government has also sped up the time it takes creditors to seize assets to recover money lent to clients, a move that should also boost NPL disposals.

Bad loans purchased by a bad-bank vehicle may be sold or managed for recovery, Taddei said, adding that the issue is “still under discussion.”

“At the end of the day, you want the people that hold the asset and place the asset on the market -- who are also the ones that have the responsibility for making it valuable -- to posses the tools to increase their value. You don’t want to break the process in too many steps, otherwise the incentives just go belly-up,” he said.

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