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Porta Nuova, Milan's financial district |
A new decree to reform Italy’s bad-debt framework has had a mixed reception from investors. On the face of it, the contents of the reforms look entirely positive, in particular for the development of a more liquid market in non-performing loans in Italy.
The government hopes the reforms will dramatically reduce the time it takes to complete bankruptcy procedures – presently around seven years, according to a recent IMF report. Making bankruptcy less time-consuming would make distressed assets much more attractive to specialist investors, which need to realise returns in a far shorter period.
Another element of the decree – cutting from five down to one the years over which banks can deduct tax from credit losses – could further encourage banks to write off bad debts. It too could help to reduce gaps between bid and asking prices in bad-debt sales.
Lack of detail
Nevertheless, the decree lacks detail. Analysts ask, for example, what implications the new tax deductibility rules have for past credit losses and deferred tax assets. Similarly, although the reform stipulates new time limits for bankruptcy trustees and judicial commissioners to liquidate companies, Berenberg points out that those limits have not yet been specified.
Overall, there is a sense that these remain piecemeal changes – and that like other reforms last year, they merely tweak a framework that needs a more thorough overhaul. The system’s complexity today is a discouragement to investment in Italy.
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Last month also saw the launch of a new platform by US private equity firm KKR and Italy’s two biggest banks, UniCredit and Intesa Sanpaolo. The banks will initially transfer up to €1 billion of corporate assets to the platform, which will provide capital and technical advice to try to turn around the businesses’ performance, and the value of the assets. It follows UniCredit’s sale earlier this year of €2.4 billion of non-performing loans to Fortress, another New York-based investment company.
Both those measures show how the bigger banks, which are also those with proportionally lower non-performing loans, are less reliant on the pace of government action. It is naturally easier for distressed debt investors to deal with a less disparate group of big banks.
As Berenberg notes, last month’s decree gives creditors more power to plan and execute a liquidation, but only the larger banks have the in-house expertise to manage such a process. Indeed, amid delays to setting up a state bad bank, the bigger banks have already made progress in establishing their own bad bank, or non-core asset division. More personal relationships may further complicate debt workouts at smaller, regional lenders.
The most encouraging news from Italy, then, might have been the central bank’s publication, according to Reuters, of rules to implement reforms to governance of Italy’s many cooperative or populari banks, and subsequently encourage them to merge. Banco Populare di Milano said in June it had hired Citi and Lazard to advise on a merger, according to Bloomberg – a sign that one longer-term impetus for a more efficient banking sector in Italy may already be in the making.