Italy's New Bank Rescue Fund Meets With Investor Skepticism

  • Fund to help weakened banks sell shares and unload bad loans
  • Atlante fund managed by Quaestio Capital investment firm

Italy’s 5 Billion Euro Remedy to Fix its Banks

Italy’s plan to help troubled lenders drew a mixed response from investors, some of whom questioned whether it’s enough to restore confidence in financial institutions crippled by billions in bad loans.

QuickTake Zombie Banks

The new vehicle will be named Atlante, private fund manager Quaestio Capital Management SGR said late Monday, ending days of talks between officials and executives. The 5 billion-euro ($5.7 billion) fund will be financed by banks, insurers and institutional investors including state-backed Cassa Depositi e Prestiti.

Italian Prime Minister Matteo Renzi is seeking to tackle an estimated 360 billion euros in soured loans, which have undermined lending as the country struggles to recover from a recession. The government’s plan to create a bad bank with public funds had previously met resistance from European officials, forcing it to water down initial plans.

“This doesn’t look like enough,” Richard Jeffrey, chief investment officer at Cazenove Capital Management in London, said in an interview with Bloomberg Television’s Francine Lacqua on Tuesday. “They could need about ten times this amount.”

Shares Slump

Italian lenders extended losses after Il Messaggero reported that the fund will have commitments of 3 billion euros to 6 billion euros, citing a draft it obtained. There’s a risk that recapitalization plans of smaller cooperative lenders -- Banca Popolare di Vicenza SCpA and Veneto Banca SpA -- “will not be supported by the market,” leading to their resolution and adding pressure on the financial system, the draft said.

Intesa Sanpaolo dropped 4.1 percent in Milan, while UniCredit SpA lost 5.2 percent, reversing gains in earlier trading. Italian lenders have been among the worst performers on the Bloomberg Europe Banks and Financial Services Index this year.

“Details from the draft and the size of the initial setup show how this isn’t a structural measure for the banking system but an ad-hoc intervention” of troubled lenders, said Jacopo Ceccatelli, chief executive officer of Marzotto SIM SpA, a Milan-based brokerage. “The tone of the draft spells out the very difficult situation of the banking industry.”

“Details from the draft and the size of the initial setup show that this isn’t a structural measure for the banking system but an ad hoc intervention,” said Jacopo Ceccatelli, chief executive officer of Marzotto SIM SpA, a Milan-based brokerage. “The tone of the

The government plans to approve additional measures to ease bankruptcy proceedings and reduce time for debt recovery, Renzi said late Monday.

Atlante, named after a Greek mythological god, will act as a buyer of last resort for banks that struggle to raise equity capital in the private markets or that can’t sell off the riskiest portions of their bad debts. The fund is being run by a private manager, Quaestio, to avoid falling afoul of European Union rules against providing state aid. Quaestio’s shareholders include Intesa Sanpaolo SpA’s top investor, Fondazione Cariplo.

The European Commission said by e-mail that it’s aware of press reports regarding the Italian fund and only has “preliminary information about this matter.” Officials in Brussels are in “close contact” with the Italian government.

Soured Loans

“The main function is to be a backstopper for all these capital raisings that will come,” Filippo Alloatti, a senior credit analyst at Hermes Fund Managers Ltd., said in an interview on Bloomberg TV with Manus Cranny. “It’s not a ‘bad bank.’ They should have done that probably in 2012.”

To help stabilize the financial system, the Italian government earlier this year reached an agreement with the European Commission allowing banks 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.

Italian lenders have more than 66 billion euros of soured real-estate loans or foreclosure properties, with UniCredit the largest holder of troubled assets, or about 45 percent, broker Cushman & Wakefield Inc. estimated in January. Intesa Sanpaolo ranked second, it said.

Depending on how big the Atlante fund eventually becomes and which bad loans it buys, that may “bridge the gap” for state-guarantees to be activated, Alloatti said.

‘Too Tiny’

“The fund doesn’t have an adequate capital structure to solve the problems of any bank,” said Carlo Alberto Carnevale Maffe, professor of business strategy at Milan’s Bocconi University. “It’s too tiny and with such a complex governance structure that it cannot change the fate of the industry.”

Adding urgency to the plan are Banca Popolare di Vicenza and Veneto Banca, which need to raise almost 3 billion euros in total to strengthen capital and avoid resolution measures over coming weeks.

UniCredit is pushing ahead with the initial public offering of Pop. di Vicenza that it’s running. The lender will start gathering orders for the IPO on April 19 and shares should begin trading on May 3, according to terms seen by Bloomberg.

“The fund aims at ensuring the success of the capital increases required by the supervisory authority to banks that are facing market difficulties, acting as a backstop facility,” Quaestio said in a statement. The fund also will buy the junior tranches of securitized bad loans, helping lenders to deconsolidate non-performing debt from their accounts.

Financial ‘Reboot’

Quaestio, with offices in Milan and Luxembourg, had 10 billion euros of assets under management as of June 2015, according to its website.

As part of the country’s consolidation efforts, Banco Popolare SC and Banca Popolare di Milano Scarl last month agreed to form Italy’s third-largest bank through an all-stock deal. It’s the biggest transaction in Italy since Banca Monte dei Paschi’s 9 billion-euro acquisition of Banca Antonveneta SpA in 2007.

“The Italian banking system has been under-capitalized, it had too high levels of NPLs, many banks have had weak management and the economic impact has been negative because banks haven’t been strong enough to provide credit,” Bob Parker, a senior adviser at Credit Suisse Group AG, said in an interview with Bloomberg TV. “A reboot of the banking system is very important, sorting out these NPLs is very important. It’s not going to happen overnight.”

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