Courtesy of Mish.
In defiance of eurozone rules against state aid to banks, Italy Plans Bad Bank "Silver Bullet" Bailout.
Italy plans to launch a series of bad bank-style measures as early as the end of the year in an effort to cut its €330bn pile of non-performing loans as it seeks a “silver bullet” to boost its weak economic recovery, say senior officials.
Such a move raises the prospect of a confrontation with the European Commission, which has so far rejected draft plans presented by the Italian Treasury, arguing that any government intervention would qualify as state aid, the officials say.
According to several senior Italian officials, one plan under discussion involves placing the bulk of Italy’s NPLs into a privately held vehicle in which senior debt would be guaranteed by the state, probably through the state development agency Cassa Depositi e Prestiti.
The aim would be to reduce the gap between the price banks are offering to sell the loans and the price private entities are willing to pay for them, which has remained stubbornly wide, amid private investors’ concerns about the ease of clawing back soured loans in Italy.
One senior government official said a clean-up of NPLs would be the single most effective “silver bullet” for boosting Italian growth.
The cabinet was meeting on Sunday for an emergency session, while the markets were closed, to decide measures to inject €2bn to save four small banks — Banca Marche, CariFerrara, CariChieti and Banca Etruria — taken under state control in the past year due to lack of solvency.
Italy’s stock of NPLs hit €330bn in mid-2014, according to the International Monetary Fund. The sum has barely slipped from that level — with a knock-on effect on bank lending. Credit flow to small businesses that make up the bulk of the Italian economy remains stagnant, according to data from the Bank of Italy.
Most recent data show Italy’s economy grew a disappointing 0.2 per cent in the third quarter of this year.
Echoing growing concern among Italy’s business leaders, Citi analyst Giada Giani wrote this week that while the country’s reform momentum had picked up over the past two years, the impact on current growth was probably limited, as signs of improvement to overall competitiveness were scant.
“Once the monetary and fiscal stimuli fade, we reckon Italian GDP growth is unlikely to exceed the 0.75 per cent to 1 per cent range,” she wrote.
Explaining the "Bad Bank" Concept
Take away artificial stimulus and I rather doubt Italy grew at all.
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