Italy’s front­line in fight to save banks

Kuwait Times - - BUSINESS -

MI­LAN: Stor­age rooms crammed with loan doc­u­ments have emerged as a hid­den front line in Italy’s bat­tle to save its banks from the threat of fi­nan­cial cri­sis. Dozens of an­a­lysts have been toil­ing in back of­fices of the na­tion’s third-largest lender, Monte dei Paschi di Siena , in the first stage of a campaign to sell or re­cover much of Italy’s 360 bil­lion eu­ros ($395 bil­lion) worth of prob­lem loans.

The an­a­lysts, en­gi­neers from a loan data firm, have worked for al­most a year with the bank’s of­fi­cials to comb through age­ing files, copies of which are kept in binders tied to­gether with string and stacked in cup­boards, in or­der to help pre­pare a 28 bil­lion euro bad loan sale.

“Ours is a painstak­ing job,” said Luca Maz­zoni, chief ex­ec­u­tive of Pro­tos, which has been hired by Monte dei Paschi. “Doc­u­ments as­so­ci­ated with a sin­gle loan can take up an en­tire cup­board. In one case I re­mem­ber half a room filled with pa­pers related to just one loan.”

Monte dei Paschi, Italy’s weak­est ma­jor lender, is un­der pres­sure from the Euro­pean Cen­tral Bank to re­solve its bad debt prob­lem by the end of the year, but for­eign in­vestors have so far shown lit­tle en­thu­si­asm in sup­port­ing its res­cue plan.

The ar­du­ous work of Pro­tos’ en­gi­neers shows how the patchy state of loan records at Ital­ian banks is likely to ham­per sales of bad debts for some time, de­spite a reg­u­la­tory push. Ex­perts say Ital­ian banks may strug­gle to meet deadlines set by the Bank of Italy to pe­ri­od­i­cally pro­vide very de­tailed in­for­ma­tion about bad loans above 100,000 eu­ros. “Banks are getting hit from all sides: they don’t have the time ... They may be stretched in terms of re­sources and they can’t fix things like their IT sys­tem overnight,” said Joe Gian­namore, head of AnaCap Fi­nan­cial Part­ners which owns a gross 9 bil­lion eu­ros worth of Ital­ian bad loans.

“If they don’t have in­for­ma­tion cap­tured cen­trally in one place, banks face a long, man­ual and very labour­in­ten­sive job.” Len­ders failed to keep records up to date as Ital­ian bad loans quadru­pled fol­low­ing the on­set of the fi­nan­cial cri­sis in 2007. When they came un­der pres­sure to sell, they re­alised their data­bases lacked much of the in­for­ma­tion that buy­ers de­manded.


Pro­tos an­a­lysts have what they call their “war rooms”, where they take the in­for­ma­tion dug out from piles of doc­u­ments and build easy-to-con­sult data­bases. Highqual­ity in­for­ma­tion can im­prove the sell­ing price of a loan port­fo­lio by up to 10 per­cent, ac­cord­ing to Maz­zoni.

“One im­por­tant les­son learnt in the dis­posal is (that) if you have a good data­base, the price is higher,” BPER CEO Alessan­dro Van­delli said after the bank sold 450 mil­lion eu­ros in bad loans in July.

This is key as banks nor­mally off­load bad debts at a loss. Monte dei Paschi’s am­bi­tious re­cap­i­tal­i­sa­tion would be an even tougher chal­lenge if a lower sell­ing price for its loans had blown a big­ger hole in its ac­counts. To shed the bad debts, Monte dei Paschi is re­ly­ing on a guar­an­tee pro­vided by the state and a ma­jor in­vest­ment by At­lante, a state-spon­sored bailout fund fi­nanced by lead­ing Ital­ian fi­nan­cial in­sti­tu­tions. —Reuters

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