Italy Plans Bad Bank-Style Debt Clean-Up to Aid Recovery

Italy plans to launch a series of bad bank-style measures as early as the end of the year in an effort to cut its 330 billion ($350.4 billion) pile of non-performing loans (NPLs) as it seeks a “silver bullet” to boost its weak economic recovery, say senior officials.

Such a move raises the prospect of a confrontation with the European Commission, which has so far rejected draft plans presented by the Italian Treasury, arguing that any government intervention would qualify as state aid, the officials say.

According to several senior Italian officials, one plan under discussion involves placing the bulk of Italy’s NPLs into a privately held vehicle in which senior debt would be guaranteed by the state, probably through the state development agency Cassa Depositi e Prestiti.

The aim would be to reduce the gap between the price banks are offering to sell the loans and the price private entities are willing to pay for them, which has remained stubbornly wide, amid private investors’ concerns about the ease of clawing back soured loans in Italy.

One senior government official said a clean-up of NPLs would be the single most effective “silver bullet” for boosting Italian growth.

“The aim is to create a structure with as little involvement of the state as possible” in order to avoid triggering European Commission rules on state aid, said another senior Italian official, speaking on condition of anonymity.

Nonetheless, bank executives remain skeptical. “It would be a miracle if they manage to convince the EU,” said the chief executive of one of Italy’s largest banks.


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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.