Italy Ailing Banks May Lose $11 Billion in Bad Loan Sales

  • Troubled banks have $22 billion in net bad loans, Visco says
  • ECB governing council member Ignazio Visco speaks in Rome

Italy’s troubled banks may suffer an additional 10 billion euros ($11 billion) in losses from the sale of their bad loans at current market prices, said Ignazio Visco, Bank of Italy governor and ECB governing council member.

“If they were sold at the very low prices offered by the few large specialist debt collection agencies active in the market today, which pursue very high returns, the amount of additional writedowns would be in the order of 10 billion euros,” Visco said on Wednesday at the central bank’s annual meeting in Rome. He pointed out that the country’s troubled banks have 20 billion euros in net bad loans.

Italy is struggling to fix a crisis legacy of about 360 billion euros of soured loans in its banks’ balance sheets that is holding back credit and weighing on the country’s weak recovery. Italian authorities are trying to prop up Banca Monte dei Paschi di Siena SpA and two banks in the northern region of Veneto, using a provision in the EU’s bank-failure rules that allows governments to provide state aid.

While talks for a state backed recapitalization of Monte Paschi, Banca Popolare di Vicenza SpA and Veneto Banca SpA are underway, Visco urged European authorities to coordinate better and faster on the banking crisis.

“Effective coordination is lacking,” Visco said. He added that “crisis interventions are assigned to multiple, mutually independent authorities and institutions, both national and supranational, with decision-making processes relatively incompatible with rapid intervention. ”

Monte Paschi

Monte Paschi Chief Executive Officer Marco Morelli, speaking in an interview with Bloomberg TV at the Bank of Italy event, said he’s confident the bank is close to finalizing its restructuring plan. “When the process is over I’ll give my view.”

Italy is seeking approval from the European Commission and the ECB to inject 6.5 billion euros into Monte Paschi and to raise the remaining 2.3 billion euros by converting subordinated bonds into shares. Italy expects to reach an agreement with European authorities soon, Fabrizio Pagani, Finance Minister Pier Carlo Padoan’s chief of staff, said May 23.

Following a recession that proved much longer and deeper than originally forecast and negative interest rates which eroded income from deposits and lending, lenders must bring profitability back to adequate levels, according to the Italian central bank. Banks need to revamp branch networks, overhaul governance structures and reduce labor costs, Visco said.

— With assistance by Chiara Albanese, and Flavia Rotondi

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