Government support
would help generate economic growth, Bank of Italy Governor Ignazio
Visco said Saturday. “Appropriate tax relief or state guarantees on
assets backed by bad debts would smooth the way for the creation of a
private market in non-performing loans,” he said in a speech in Milan.
Photographer: Chris Ratcliffe/Bloomberg
Banca Monte dei Paschi di Siena SpA, the weakest performer in the 130-bank review, is likely to almost triple its loan-loss provisions to 3.2 billion euros, according to the average of six analyst estimates compiled by Bloomberg for Italy’s third-biggest bank. In total, the top five banks may set aside about 8 billion euros, company and Bloomberg estimates show.
The nation’s lenders are saddled with a record 181 billion euros of nonperforming loans that are hindering their ability to expand lending and holding back the country’s
recovery from its third recession in six years. More than two years after the balance-sheet clean-up started, the government is considering creating a bad bank to accelerate disposals of problematic assets.
“A bad bank vehicle combined with structural reforms would be a key tool to improve Italian bank profitability,” analysts at Morgan Stanley including Francesca Tondi wrote in a report Friday.
Fabrizio Bernardi, an analyst at Fidentiis Equities, said banks with a lower-than-average asset quality profile would benefit the most from a bad bank.
Clean Start
All five banks are scheduled to publish fourth-quarter earnings this week. Leading the pack, UniCredit SpA and Intesa Sanpaolo SpA will probably set aside about 3 billion euros between them. Both banks posted full-year losses in 2013 after writing down billions of non-performing loans. Banco Popolare SC, the country’s fifth-biggest lender, may post 1.27 billion euros in provisions, according to the surveys.Fourth-quarter earnings are likely to show “subdued trends and low profitability, but our focus is on outlook,” said Azzurra Guelfi, an analyst at Citigroup Inc. She said prospects for Italian banks are improving, citing their efforts to deal with bad loans and the ECB’s forthcoming purchases of European sovereign debt, set to start in March. “In the long term, we favor Italian banks,” Guelfi said.
Industry Shakeup
Italy’s banking industry is facing the biggest shakeup in more than two decades after the government in January approved a decree to convert cooperative banks into joint-stock companies. The overhaul will make them more appealing to investors and give them more access to capital markets, Visco said.Investors who shunned Italian banks during Europe’s debt crisis showed renewed interest last year. Shares of Italian lenders have rallied over the past 12 months, outperforming the 45-member Bloomberg Europe 500 Banks and Financial Services Index. The FTSE Italia All-Share Banks Index returned 8 percent, while the BEBANKS index declined 2 percent.
Lenders across the euro area are shoring up balance sheets under pressure from the ECB, the region’s new banking supervisor. The ECB wants banks to either provision for overstated assets or raise more capital after a yearlong review found many had inflated their assets.
Fifteen Italian lenders evaluated by the ECB were judged to have overvalued their loans by about 12 billion euros at the end of 2013. Most had closed the gap by the time the ECB issued its results in November, either by raising capital, booking extra loan losses or selling non-performing portfolios.
Monte Paschi
Monte Paschi faces a second challenge as a result of the ECB’s asset quality review, or AQR. In addition to overstating its assets by about 4.2 billion euros, it failed the ECB’s stress tests, another component of the health check. Monte Paschi came up 2.1 billion euros short of the funds it would need to survive a crisis.The ECB has instructed Monte Paschi to increase its minimum capital ratio as part of a plan to raise 2.5 billion euros from investors. The bank, founded in the 15th century and considered the world’s oldest lender, will probably post more than 3 billion euros in extra provisioning for the fourth quarter, people with knowledge of matter have said.
“As a consequence of moral suasion from the ECB and the Bank of Italy, we expect Italian banks to book all or the vast majority of the residual AQR charge” in the fourth quarter, starting 2015 “with a blank sheet,” Andrea Vercellone, a London-based analyst at Exane BNP Paribas wrote in a Jan. 30 note.
(Figures in mln euros)
Bank Total AQR 3Q LLP 4Q LLP No of
Adjustments* Stated Expected Estimates
(avg)
UniCredit 1,026 754 1,510 ** 22
Intesa 973 1,248 1,399 11
Paschi 4,246 1,257 3,239 6
Banco Pop. 1,603 445 1,269 10
UBI 390 197 320 ** 13
* ECB’s AQR results based on 2013 figures
** Bank’s survey
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