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In an interview with the Financial Times, Alessandro Rivera, director-general for the banking and financial system at Italy’s finance ministry, said that while the government guarantee plan was not a “silver bullet” for Italy’s struggling banks, neither was it inherently flawed.
“The tool will be effective to bridge the gap that exists between demand and supply for non-performing loans,” Mr Rivera said. “It will narrow the distance and simplify discussions between buyers and sellers, lowering the cost of funding, and we expect to see a growing number of transactions.” [...]
The bad loans will not be sold individually under the new plan but will be packaged through securitisation — a market that has been lacklustre in Europe over recent years — and sold to private investors.
“These transactions are not frequent in Italy, but there is increasing activity,” Mr Rivera said. “[Securitisation] allows us to streamline the process and industrialise it and allows the involvement of the rating agencies, which are a key pillar of the scheme,” he said.
Doubts remain about how effective the plan will be, as the government has said its guarantees will apply only to the least risky, or senior, tranches of debt that are given an investment-grade rating.
“It’s unclear how many senior notes they can create from a given pool of non-performing loans, and how many junior notes they can sell,” said David Covey, head of European ABS strategy at Nomura.
The scheme is also voluntary for Italian banks, which Fitch, the rating agency, suggested last week “may limit take-up”.
However, Mr Rivera suggested there was plenty of appetite from potential buyers — mainly hedge funds and private equity firms — and predicted a “snowball effect” of transactions.
“We know they have collected large amounts of money from their investors: the pressure is on them to do something and the money is there,” Mr Rivera said. “They are extremely interested and we are receiving a number of calls for clarifications and will proceed to explain [the scheme] better,” he said. [...]