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Agreement reached on Italy’s €6 bn fund for bank recapitalizations, NPLs

by Luca Davi and Marco Ferrando

The agreement on the fund for the stabilization of the Italian banking sector has been reached. The “Atlante” fund, with resources of at least €5 billion (plus debt), will step in to buy any unexercised rights left over in the upcoming capital increases.

And, after that, it can step into the market to buy the securitizations of non-performing loans (NPLs). Importantly, these securities should be priced in line with the value of the assets held on the banks’ balance sheets, and therefore far from current market prices.

The formal kickoff of the fund is expected in the coming days. But yesterday, during three meetings held at the Economy Ministry, the structure of the project and the possible subscribers were defined: the main insurance companies (which are expected to invest €1 billion), banking foundations (€500 million) and especially banks, which are expected to provide €3 billion (€1 billion from Intesa Sanpaolo and UniCredit, one third of the others excluding Mediobanca, which ruled itself out).

Joining them should be state-backed lender Cassa Depositi e Prestiti (CDP), with an expected amount of €500-600 million, with a similar contribution for Società per la gestione delle attività (SGA), the company founded in 1997 to rescue Banco di Napoli, and which in little over 15 years managed to recoup 85% of the unpaid loans of the bank, today part of Intesa Sanpaolo group.

The investment management company (SGR) that will manage the fund is Quaestio Capital Management sgr, led by Alessandro Penati, and 37.6%-owned by Fondazione Cariplo.

The agreement will be put in writing and submitted to potential subcribers, and is expected to be ready today.

But yesterday, the meetings defined the framework of the project, which has been under review for about a month with help from two advisers (Bofa Merrill Lynch and law firm Bonelli Erede), between Rome, Brussels and Frankfurt, considering the necessary approval by the European Commission and the ECB.

The participants in the meeting were asked to decide their level of participation in few days, and in time for the recapitalization of Banca Popolare di Vicenza, which will launch its capital increase on Monday: once the material is examined, it’s possible that banks, insurers and foundations next week call board meetings for the approval .

Quaestio Sgr said in a statement yesterday that fund is expected to intervene in the final bookbuilding phase, in case of unexercised rights.

The the guarantee by the Atlante fund could change radically the perception of the upcoming capital increases, eventually reducing to zero the share of unexercised rights. We will see.

NPLs are the second goal: Atlante “will concentrate its investments on the junior tranche of the securitization vehicles, using those with major security for which there is clear interest from investors,” said Quaestio Sgr.

As reported in recent days by Il Sole 24 Ore, the fund will intervene at the end of the securitizations, which could use public guarantees for the senior tranches (GACS) and which should take place at higher prices than the market, or in line with those of the banks.