Italy’s frontline in fight to save banks
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