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Italian banks: lurking in troubled shadows

Italian banks: lurking in troubled shadows

  • 19May 16
  • Rahul Kalia Investment Manager, Fixed Income

A faltering capital raising by Banca Popolare Vicenza in April set off a bout of cynicism about the health of Italian banks that ended up rocking the whole sector. The problems of the Italian banks have since retreated into the shadows. With another capital raising around the corner, that probably won’t last for long.

The next capital raising is for Veneto Banca in June for around €1 billion. The bank is probably already marketing the deal but it’s hard to see who exactly is going to want to buy the shares.

At the rate they’re going, there’s not going to be much left in the kitty.

The Atlante fund, Italy’s bank rescue fund, will probably have to take the shares, as it did in April for Banca Popolare Vincenza’s capital raising. That’s a problem. The fund is only €5 billion so they could end up spending over half of the kitty on just two of the possible four capital raisings. But there’s a bigger problem. The fund was supposed to be used to soak up the swollen books of non-performing loans on Italian banks’ books. At the rate they’re going, there’s not going to be much left in the kitty.

It’s not all doom and gloom. There are some sensible plans to try to shorten the workout time for NPLs (non-performing loans). It currently takes about eight years so shortening that time would attract new investors. But at the moment the proposals would only cover new NPLs so wouldn’t help remedy the big stock of existing ones. There’s a long way to go yet for Italian banks.

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