The Economist has run a good piece on the trade offs being decided now in Italy regarding the future in the foreground of two regional lenders, but in the background, the Italian banking system as well. A new Resolution Entity named Atlante will be formed with the backing of a group of Italian financial institutions for up to E5.5 billion, initially to provide an equity swing line to the two regional lenders and over time purchase Italian NPLs direct from other lenders, which are stubbornly high as noted in this blog beforehand. The funds will be administered by a fund managed by the well regarded Alessandro Penati with strong ties to the financial community in the US and Europe. It sounds like Atlante may well become shortly a big shareholder in the two lenders in order to absorb any shortfall of equity placement. Let's hope Atlante can begin soon extend its efforts and accumulate NPLs across the sector as addressing asset quality in the country is a key priority, so many years after the financial crisis and following the new banking rules that came into place this January 1st.
What is of interest to me though is that in lieu of Atlante, one obvious approach is for Italy to serve as the first staging ground for the EU bail-in rules... so a consortium of sector actors coming to rescue makes a lot of sense at this late stage. The Economist reports Italian bank shares are down 30% YOY, so now is no time to test the fortitude of l'uomo e la donna per strada....There is no shame here if swiftly implemented, I was just looking at this morning the list of TARP recipients which reads like a who's who in American finance, although that was almost eight years ago. It is clearly time to address these structural issues and move on. The Economist article can be found at http://www.economist.com/news/finance-and-economics/21696996-italys-latest-attempt-stabilise-its-banking-system-heavy-load.
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