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Italy forms 5b euro fund to end doubts about banking system

Tuesday, April 12, 2016 - 07:38

[MILAN] Italian officials and financial firms agreed to create a multibillion-euro fund to help weakened banks raise capital and unload bad loans, as the nation tries to assuage investor jitters and avert a crisis.

The new fund, named Atlante, will be supported by numerous institutions, its manager, Quaestio Capital Management SGR, said late Monday after more than a week of meetings among banks, insurers and state lender Cassa Depositi e Prestiti. The fund may be worth about 5 billion euros (S$7.67 billion), said Banca Popolare dell'Emilia Romagna Scarl Chief Executive Officer Alessandro Vandelli, speaking on the sidelines of the meeting.

Italy is trying to help unprofitable lenders lure private investors and avoid creditor losses as the European Central Bank steps up pressure on the country to tackle an estimated 360 billion euros in bad debt.

With the economy struggling to recover from a recession, Prime Minister Matteo Renzi earlier this year struck an agreement with the European Commission that allows banks to bundle their soured loans into securities for sale, while purchasing a state guarantee for the least-risky portion.

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Atlante 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 managed by a private manager, Quaestio, because Italy doesn't want to fall afoul of European Union rules against providing state aid. Quaestio's shareholders include Intesa Sanpaolo SpA's top investor, Fondazione Cariplo.

News that negotiations to create a fund were taking place led to a surge in Italian bank shares earlier on Monday, with Banca Monte dei Paschi di Siena SpA jumping 9.8 per cent in Milan, UniCredit SpA advancing 2.4 per cent and Intesa Sanpaolo rising 1.7 per cent.

That pared losses that have put them among the worst performers on the Bloomberg Europe Banks and Financial Services Index this year.

Such a fund would "remove some of the systemic risk affecting Italian banks since the start of the year," Riccardo Rovere, an analyst at Mediobanca SpA, wrote in a note Monday before the fund was announced.

"On the other hand, the size of the fund, its functioning and means and ways to use such liquidity are extremely important."

Adding urgency to the plan are Banca Popolare di Vicenza SCpA and Veneto Banca SCpA, 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 Popolare 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 back-stop 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.

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

"Today they explained the terms of the issue," Mr Vandelli said. "We look forward to receiving documentation from the ministry, so we can submit it to our boards later." The stake for state lender CDP has yet to be quantified, Mr Vandelli said.

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