Italy Leaders Push Banks Plan, ECB’s Mersch Cautions on Market

  • Premier Renzi, finance minister address Ambrosetti Forum
  • Plans for Monte Paschi, banks are key on first day of meeting

Before an elite financial and business audience, Italy’s prime minister and finance minister strove to project optimism that their drive to overhaul the country’s troubled banks will succeed. But a fellow guest from the European Central Bank damped expectations with a warning the market could have the last word.

The restructuring of Banca Monte dei Paschi di Siena SpA, and the non-performing loans weighing on it and other banks, dominated the first day of the Ambrosetti Forum in Cernobbio, an annual gathering of chief executive officers and bankers on the edge of Lake Como in northern Italy.

Pier Carlo Padoan

Photographer: Simon Dawson/Bloomberg

In an interview with Bloomberg Television’s Flavia Rotondi, Finance Minister Pier Carlo Padoan said he was “moderately optimistic” that Italian banks were becoming more stable, and “moving away from a misperception of the fragility of the system which is not validated by facts.” Monte dei Paschi is one of “the more critical cases” and is being dealt with “quietly and effectively, ” according to Padoan.

Share Selloff

Monte Paschi’s plan follows a share selloff that wiped about 75 percent off its market value this year and led Italian banks to record lows in Milan, succumbing to fresh concerns that the country’s lenders are under pressure to raise capital. Italy’s banks have lost about 45 percent of their value this year, the worst performers among European lenders.

Prime Minister Matteo Renzi and Padoan have been seeking ways to shore up the financial system, hurt by 360 billion euros ($403 billion) in soured loans and slowing economic growth. The government has been pushing for a package of reforms to modernize Italy and spur growth since it took office in February 2014.

The government has pressed cooperative lenders to become joint-stock companies, implemented measures to speed up bankruptcy procedures and backed the creation of a bank rescue fund, named Atlante, to help bank capital increases and sales of soured debt.

Solid System

“Our banking system is decidedly more solid than usually described,” Renzi echoed his finance minister in his speech Friday at the forum. He said he hoped that Paschi’s capital increase could be completed by the end of the year.

Renzi’s political future may be at stake. NPLs weighing on banks cripple their lending capabilities, which in turn weighs on weak economic growth. Renzi needs stronger growth in part to help him win a referendum on constitutional reforms which is expected in November; he has said he would quit if he loses.

Yves Mersch, an ECB Executive Board member, struck a more cautious note. It was also “up to the market” to assess whether the Italian government had done enough to address the issue of NPLs, Mersch told reporters at the forum.

A solution to the NPLs issue in Italy “needs to be pursued in a determined way,” he added. “In Italy there are certainly questions in terms of insolvency law implementation, of insolvency law and the realization of collateral which is more difficult than it would be in other countries,” Mersch said.

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