Vatican, Bank of Italy ink key pact after years of ‘mistrust’

Pension funds back bank rescue plan

VATICAN CITY, July 26, (RTRS): The Vatican and the Bank of Italy on Tuesday signed a key cooperation agreement aimed at regularising their relations and ending years of Italian mistrust over Holy See finances.

The accord, signed by BOI Governor Ignacio Visco and the Vatican’s top financial regulator, Rene Bruelhart, comes after years of financial reforms, most of them under Pope Francis, to bring the Vatican and its troubled bank up to international standards to guarantee transparency and combat money laundering.

A joint statement said the agreement, which the Vatican had lobbied hard to win, “aimed at enhancing the exchange of information in the field of financial supervision, on the basis of reciprocity”.

It “allows the authorities to broaden the channels of information” in order to monitor transactions between Italian financial entities and the Vatican, a sovereign state in the middle of Rome whose financial activities the BOI has for decades viewed with suspicion.

“This effectively normalises relations,” Bruelhart told Reuters in a telephone interview.

Stopped

In 2010, Italian banks stopped dealing with the Vatican bank, officially known as the Institute for Works of Religion (IOR), after the BOI told them they had to enforce strict anti-money laundering criteria.

That year, Rome magistrates investigating possible money laundering froze 23 million euros ($31.15 million) held by the IOR in two Italian banks. The IOR said it had merely been transferring its own funds between accounts in other countries. The money was later returned. In 2012, Italy blocked the use of debit and credit cards in the Vatican because of concerns over lack of transparency, which was a major obstacle to one of the tiny city state’s biggest sources of income from tourists visiting the Vatican museums.

In recent years, relations between Italian and Vatican financial authorities have been improving.

In 2013 the BOI’s Financial Intelligence Unit signed an accord with its Vatican counterpart and a separate financial information sharing agreement with Italian tax authorities in which the Holy See pledged full cooperation and transparency.

The Vatican had long been criticised by financial organisations for providing a tax haven for well-connected Italians by allowing them to hold secret bank accounts.

Pope Francis has made financial reform a central plank of his papacy. Under his watch the IOR has closed thousands of accounts in the past few years and he has also greatly increased the power and independence of the Vatican’s financial intelligence unit.

Last December, the European financial crimes watchdog Moneyval, which had previously criticised the Vatican, issued an overwhelmingly positive report, saying it had made great strides in cleaning up its scandal-plagued bank and other financial departments.

But the report also said the Vatican’s judiciary should be much more aggressive in dealing with people suspected of financial crimes like money laundering and step up prosecutions and indictments.

Meanwhile, specialist Italian pension funds have agreed to a government call to invest in bad bank loans, as Rome works to build a safety-net around Italy’s No. 3 lender Monte dei Paschi ahead of European bank stress test.

The Tuscan bank, which has one of the heaviest bad loan burdens in Italy, is likely to be found short of capital under an adverse scenario when results of the latest Europewide banking check-up are released on Friday night.

In a bid to reassure the market, Italy is looking for ways to support its banks without breaking European Union state aid rules that would require investors to take a hit first

AdEPP, the association of sectorspecific pension funds, said on Monday a decision had been taken to support a new bank fund called Atlante 2. Each fund will need to approve the investment.

AdEPP chairman told Reuters the government had asked its members to invest in Atlante, which is working with Monte dei Paschi on the sale of bad debts worth a net 10 billion euros ($11 billion).

A source familiar with the matter said Rome had asked for a 500 million euro investment.

Atlante, hastily set up in recent months to help Italy’s weakest banks, has used more than half of its initial 4.25 billion euro endowment to take over two failing regional banks.

The source said the new fund would only invest in bad loans and not bank equity.

Recession

Problem loans totalling 360 billion euros after a three-year recession have become the focus of investor concerns over Italian banks, weighing heavily on their shares.

Sources have said Italian state lender Cassa Depositi e Prestiti is also ready to provide up to 500 million euros to the new Atlante fund. A similar amount would come from SGA, another Treasury-controlled entity.

To comply with a request from European Central Bank supervisors to clean up its balance sheet, Monte dei Paschi last week submitted to the ECB a plan to sell its bad loans and is hoping for a green light by Friday.

Under the plan, Atlante would buy the bank’s loans to borrowers deemed insolvent in a complex scheme that aims to leverage fivefold the fund’s residual resources of 1.75 billion euros, sources have said.

Atlante is ready to buy the loans at a higher price than investors specialising in distressed assets would offer, but that would still be below the portfolio’s net book value, blowing a hole in the bank’s account and forcing it to raise capital.