EU Sees No Issues With Italy, Hungary Non-Performing Loan Plans

  • EU says it formalizes Vestager/Padoan deal on bad-bank plan
  • Programs don't involve state aid that would need EU review

European Union regulators said Wednesday they saw no state-aid problems with Italy’s bad-bank deal, which will allow lenders to offload soured loans after buying a state guarantee.

The European Commission also said it had no issues with Hungarian plans for its MARK asset-management company to buy non-performing loans at market prices. Neither program involves state aid that requires review, the EU said in an e-mailed statement.

The announcement on Italy “formalizes an understanding reached” between EU Competition Commissioner Margrethe Vestager and Italian Finance Minister Pier Carlo Padoan last month, the EU said. Since Italy “intervenes as a private investor would do" and receives repayment for the risk it assumes, the program isn’t a state subsidy that would require approval.

“EU rules offer member states different tools to kick-start the clean-up of bank balance sheets, either with or without the use of state aid,” Vestager said in a statement. “The commission’s role is simply to ensure that the choice made by the national government does not unduly burden the public purse or distort the level playing field in the EU.”

Italy’s bad-bank plan stops short of the cleanups organized in Spain and Ireland during the financial crisis. Emanuele Vizzini, who manages 3.5 billion euros ($3.9 billion) as chief investment officer at Investitori Sgr in Milan, said last month that uncertainty in the Italian financial system will persist and that weaker banks may still need more capital even after they start to clean up their balance sheets.

Banks will be able to bundle their bad loans into securities for sale, while purchasing a state guarantee for the least-risky portion to make the debt more appealing to investors, the Italian Treasury said last month. The pricing of the state guarantee on senior notes will be on market terms, to ensure the scheme is aid-free, the Treasury said. Pricing will vary depending on the risks taken on by the state and the maturity of the notes.

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