Shortlist for the Banco Bpm NPL

31 July, Milano Finanza

A couple of players will deal with Banco Bpm to define the last piece of the de-risking plan. According to the Milano Finanza, the Board of Directors of the bank led by Giuseppe Castagna will meet on Friday 3rd August regarding its NPL disposal plan. The so-called Project Ace is on the agenda, concerning the revaluation of a portfolio amounting between 3.5 and 9.5 billion. The price differential is rather broad, and it will be reduced in the later phases of the process. In fact, the bank might decide whether to sell only one single portfolio, as it has done so far, or to transfer the management platform too, bringing the nominal total stock close to 10 billion. In conclusion, it will depend on the price investors will bid and on whether the operation will be economically convenient.

After having gathered the non-binding offers, the bank did an initial screening at the beginning of July when the submission of the binding proposals. Among the candidates, there are allegedly six teams: Tpg-Crc-Davidson Kempner-Prelios (assisted by the advisors Mediobanca and Rothschild), DoBank-Fortress (with Citi), Credito Fondiario-Elliott (with Goldman Sachs and Cbre), Varde-Guber, Cerberus (with Lazard and Vitale), and Pimco-Phoenix Asset Management. The predictions say that the first two teams are the favourite to be included in the shortlist, but last-minute changes are not be excluded. What is certain is that the negotiations to define the operation will resume after the summer and will probably conclude during the autumn. Banco Bpm, with the assistance of the advisors Deutsche Bank, Kpmg and Akros, will have to reach a deal to meet the objectives set with the ECB. In this way, the bank will have cleaned up its assets, ready for the 2019 targets.

In the past few months, the group has completed a securitisation with state guarantee (Gacs) for 5 billion assisted by Deutsche Bank, Mediobanca and Akros and with Akros in the role of servicer. The securitisation is the last of a long series of significant transactions recently finalised under the management of Edoardo Lombella (in charge of portfolio disposal). In June 2017, for instance, the bank sold to Algebris the portfolio Project Rainbow for 693 million, composed of secured loans backed by hotels, commercial and residential properties. In December 2017, the bank sold the Sun portfolio, worth 1,8 billion, to J Invest and Hoist Finance.

Source: Milano Finanza

Translator: Cristina Ambrosi

Mps is selling its properties

22 May, Milano Finanza

Whilst there is still tension on the political side, Monte dei Paschi is trying to focus on the objective of the business plan. According to Milano Finanza, the bank launched the sale of a portfolio of commercial properties for a value assessed around half a billion. The operation is assisted by Duff & Phelps Reag and it concerns the branches closed during the reorganization plan and the other properties owned by the bank. It’s not to be excluded that sales & leaseback solutions might be applied to the portfolio, as many other banks had done in the past. This is a wide range operation that has already got the attention of the international investment funds and of the specialised operators of the sector. However, it will be a long process, considering non-binding and binding offers, and it might last till autumn.

Real estate is one of the areas targeted by Mps for potential sales, even though there was no set target on the document signed last July. The sale process might be parallel to the one concerning the IT platform. For this latter, there are only a couple of potential buyers left in the negotiation: the British fund Apax, together with the subsidiary Engineering (acquired in the first part of 2016 in collaboration with NB Renaissance), and Fondo Strategico Italiano, which might involve also the recently acquired Cedacri in the bid. Whereas Bc Partners might be out of the competition, which has initially evaluated the dossier together with the technology giant IBM.

While the Mps management and its advisors are working on the execution of the business plan, the attention of the market is focused on the actions of the shareholders. Last week, the statements of the Lega representative Claudio Borghi caused a debate, putting forth a U-turn on the commitments with the EU and a reorganization of the high management of the bank. The statements caused a panic selling on the market, where in three sessions the stocks lost 12% of their value, closing yesterday at 2.833 euro. Yesterday Equita had to lower the target price on the bank from 3.9 to 3.6 euro due to the programs of the potential new government. The real estate brokerage company from Milan talks about “political uncertainty, possible impacts on the governance, strategy and objectives”. Investors are mainly worried about the possibility that the new government might change the binding agreements with the ECB and dgComp regarding the bailout of the bank. If such commitments are not respected, the precautionary recapitalization might be at stake, with the result of a very risky bail-in scenario for the bank. Besides the restrictions on the commercial strategies, the evolutions of the profits and remunerations, at the core of the agreement there are indeed those cost cuts that Lega is questioning. For this reason, politicians have stayed away from the matter in the past, asking rather to the Ministry of Treasury. This was the approach adopted, for instance, by Movimento 5 Stelle, which not by chance did not intervene in yesterday’s debate. The entry of Lega worries the market. “They’re playing with dynamite”, commented the country manager of an international bank, implying that such statements might jeopardize the investments of international companies in Italy. For what concerns a potential change in the high management following a logic of spoil system, there are several hypotheses circulating in the environments close to the future government. For instance, someone is thinking to nominate the president of Deutsche Bank in Italy, Flavio Valeri, who is very appreciated in Italy and abroad. Another name is Fabrizio Viola, who from 2012 to 2016 guided the reorganization of Mps and was suddenly expelled.

Source: Milano Finanza

Translator: Cristina Ambrosi

NPL. The ECB might give up on strict rules on bad loans

27 April, Wall Street Italia

The European Central Bank is currently evaluating the possibility of doing without the regulations forcing banks to make bigger provisions against their NPL stocks. The ECB guidelines, expected by March, were presented as the key element to attack the 759-billion-euro stock of non-performing loans of the banks of the Eurozone, especially from Greece, Portugal and Italy.

As communicated by a spokesman, the ECB might be evaluating the necessity of these regulations on bad loans and this will depend on the achievements of each bank. A decision on the matter hasn’t been taken so far, and the ECB is currently pondering which steps to take. According to Reuters, even if the current rules will be abolished, the ECB will continue closely supervising those banks struggling with bad loans.

Cleaning up banks’ statements from all the bad loans inherited from the financial crisis is an essential condition for the approval by countries like Germany of the constitution of a guarantee system on bank deposits common to all the Eurozone. The NPL guidelines give banks seven years to fully hedge secured loans and two years for the unsecured ones.

The initial plan implying similar guidelines for the stock of existing credits looks now less likely, according to Reuters. The ECB might have changed its mind after some member of the European Parliament pointed out that the institution was invading their rights applying rules to all the banks, rather than working on the single cases.

Source: Wall Street Italia

Translator: Cristina Ambrosi

The ECB allows more time to credit unions to dispose of NPL

26 April, Blasting News

The new Asset Quality Review tranche, namely the assessment by the ECB on the provisions on bad loans, might be postponed for credit unions. The assessment was initially planned for the autumn, but it might be postponed to the first quarter of 2019, according to some rumours.

This is good news since it gives more times to banks to clean up their financial statements, considering also the recent guidelines included in the addendum by the ECB.

The advantages

Having the assessment and the stress test in 2019 rather than 2018 means carrying out these verifications on this year’s figures and not on those of 2017, including in this way the remarkable results obtained in the reduction of NPL. According to Il Sole 24 Ore, the staff from Banca d’Italia and the ECB is already working at the parent bank’s site to assess the advancement stage of the consolidated statement.

The postponement might be also due to the decision of waiting for the upcoming constitution of the three groups, namely Iccrea, Cassa Centrale and the credit unions of Alto Adige. The groups are about to be admitted soon to the European Surveillance.

The NPL reduction activity

According to recent news, the NPL stock of the future Iccrea Group is 20 billion gross and 9.7 net.

The actions aimed at reducing this stock include a first transfer for 800 million by mid-2018 and transfers for a total of 3.5-4 billion throughout the next 2 years according to the business plan.

For what concerns Cassa Centrale, its NPL ratio is set at 16.5% and it’s expected to reduce to 8% by 2021. A challenging objective but not impossible considering the good capital base with an 18.4% Cet1 at the end of 2017. The disposal plan implies three tranches, a first amounting to one billion by December 2018 which will benefit from the Ifrs9 accounting principle, a second with a 740 million securitisation which should be put on the market in 2019, and the third for 3.4 billion in 2020.

Source: Blasting News

Translator: Cristina Ambrosi

NPL. The effects of the ECB guidelines

19 April, Blasting News

The ECB guidelines on the management of NPLs might lead the Italian banks to increase their provisions on bad loans and consequently, their disposal operations. It will be an incentive especially for unsecured loans since these are destined to be fully devalued after two years from the classification as non-performing loans.

An additional incentive, especially concerning the most granular exposures, is given by the credit management that may result being very expensive if kept internal, while it will grant high commissions if outsourced. As a result, it will not be convenient keeping these exposures.

Estimations on the main provisions

According to Equita SIM, the additional requirements as a consequence of the new guidelines might amount to 30 base points in the Cet1, which is not particularly burdensome considering the average of 351 base points representing the Italian banks’ buffer.

The unsecured component, which will be more immediately impacted by the ECB addendum, represents about one-fifth of the total NPL stock and will be for large part object of the transfer activity. The new regulations from the European Commission will also be impact provisions, as they substantially match the guidelines from the Surveillance Authority.

The possible effects on the lending policies

An indirect effect might be registered in the credit lending policies. In fact, the obligation of fully devaluating in short times might induce banks to request more guarantees, higher returns or making a stricter selection.

According to Giovanni Ravazzoli from Equita SIM, the strategies might include the reduction of the amounts issued, especially for what concerns consumer credit in the retail and small business segments, as well as the shift towards the role of banks as distributors involving the participation of companies specialised in consumer lending since these are not object of surveillance by the ECB.

Another element to consider, keeping in mind the private equity process on the servicing platforms, might be the incentive to stop collection operations in order to avoid the costs to adjust to the stricter regulations.

Source: Blasting News

Translator: Cristina Ambrosi

The ECB confirms the term of 7 years for the devaluation of NPL

18 April, Blasting News

The definitive version of the addendum to the ECB guidelines concerning the management of bad loans has been published. The term of 7 years has been confirmed. After that, the credits backed by real estate must be fully devalued. In order to avoid controversies, the document clearly specifies that: these guidelines are applicable to those credits classified as non-performing starting from March 2018, and that these are not binding conditions, as each case will be individually evaluated during the inspection phase.

The minimum prudential requirements for bad loans provisions have also been disclosed with the guidelines.

Difference between guidelines and measures

The measures have a regulatory nature; hence, they’re binding, and all the banks have to comply. Whereas the guidelines are an addition to the cautionary accounting management when dealing with NPL. The document also includes intermediate thresholds for provisions before the 7 years term.

The ECB guidelines will be applicable to bad loans as of March 2018, thus they will not be applicable to the existing stock.

The new guidelines will be effective on the credits originated starting from 14th March 2018 and they will applicable starting from the moment these credits become non-performing.

The difference between 7 and 8 years

Eight years from the default date is the due date starting from which the binding regulation forces banks to fully devalue their credits issued starting from 14th March.

Whereas seven years is the indicative limit after which, during the inspection phase, the surveillance officers will deem appropriate whether a secured loan should be fully devalued unless there is evidence supporting an alternative accounting choice.

Source: Blasting News

Translator: Cristina Ambrosi

Cooperative credit banks: more time for ECB test. Maxi NPL transfers coming up

05 April, Il Sole 24 Ore

The future cooperative credit groups, Iccrea e Cassa Centrale Banca, are currently working on the operational plan to operate as groups that might be launched at the beginning of next year. There is also an encouraging element. In fact, the comprehensive assessment by the ECB might be postponed. The asset quality review and the stress test were originally scheduled for autumn 2018, but they might be postponed to the first quarter of 2019, when the two groups will have obtained the authorization from the Surveillance Authority. That makes a lot of difference. In the meanwhile, the banks are working on cleaning up their financial statements. Since the ECB tests are based on the performance referred to the previous year, the results will be definitely better if the tests are carried on the 2018 figures. Furthermore, the groups will have to opportunity to avail themselves of the early warning power as regulated by the contract, hence they’ll be able to check on those banks that are not compliant with the regulation.

In the meanwhile, the groups have started an internal comprehensive assessment at the beginning of the year as suggested by the ECB in order to assess their financial strength and the sustainability of the business plan before submitting on 2nd May the official request to the surveillance authority to operate as group. The professionals from Banca d’Italia and the ECB are already working with the two banks to check the smooth execution of the process. The crucial part is the stock of bad loans and the measures adopted for their disposal. Iccrea has gross debts of approximately 20 billion, 9.7 billion net. Of this, 4.3 are net bad loans, as recently stated by the management of the group. Iccrea has been studying lately an NPL transfer operation: the first tranche of 800 million will be transferred in June with a securitisation using state guarantee (Gacs). The business plan includes also another tranche for the value of 3.5-4 billion over the next two years. It’s likely that once the request to operate as group will be submitted, the authorization will be released shortly after. Hence, it’s possible that the extraordinary meeting of members will gather already in October to decide on the cooperative credit banks adhering to the group.

Whereas Cassa Centrale Banca has recently gathered in Bari around one hundred cooperative credit banks involved in the same process as Iccrea, and it’s currently working to submit the official request to the ECB on 4th May. The group has a gross NPL ratio (the ratio between bad loans and total assets) of 16.5%. The objective is to reduce the ratio to 8% by the end of the business plan on 2021. An ambitious goal that is supported by a good equity level with a Cet1 set at 18.4% at the end of 2017. There is the plan for a transfer bad loans for 2.1 billion in three tranches. One billion will be put on the market by the end of the year with an ad hoc operation which is currently on, involving 48 cooperative credit banks that have selected the portfolios to transfer (taking advantage in this way of the first time adoption as regulated by the new Ifrs9 accounting principles). The second tranche will amount to 740 million and it will be carried out through securitisation, the operation will be launched at the beginning of the next year. Finally, in 2020 NPLs for 300/400 million euro from 30 cooperative credit banks will be transferred. The governance of the future bank has been already drafted: 15 members at the Board of Directors, 7 of which will be independent and external councillors (Ceo included), and 8 members representing the affiliated banks.

Source: Il Sole 24 Ore

Translator: Cristina Ambrosi

Real estate crisis and banks’ crisis: restarting from properties

04 January, Wall Street Italia

2012 assisted to the creation of the negative conditions for the national economy. One of the causes was a crisis of the property market that impacted many other sectors in Italy.

Since then, despite a latent financial crisis with a spread increase, the economy looked pretty much in good shape. Internal consumptions were good, trades and production granted jobs, the insolvency rates and arrears were average: even if with some difficulties, the system was doing fine. Starting from the end of 2011, the Governments targets real estate: municipal taxes increase, as well as the income tax on properties, the taxes on historical buildings and monuments of architectural heritage, the Imu tax on agricultural land and, finally, the cadastral reform with penalising effects. The immediate consequences are the worry and mistrust of money savers and the drop of real estate transactions, along with the fall of prices on the market. People assist to a progressive impoverishment and the reduction of consumption and expenditures. Many companies close, unemployment grows. An actual downward spiral.

The economic system, whose balance has been kept with difficulty since then, crashes. It enters a period of crisis that impacts also the totality of the real estate turnover, from new constructions, infrastructures, maintenance works, to property requalification.  In this way, the financial crisis becomes an economic crisis.

The significant fall of the property prices impacts negatively the many real estate assets held by banks, both directly and as guarantee of credits. The NPL issue starts. Banks can’t collect credits, they cut loans to companies and families (mortgages): a deadly cycle. The property market struggles to restart. The credit system fears the measures from the ECB, who dictates that the unsecured bad loans must be 100% covered within two years. A trap for Italian banks: either they work on collecting credits, or they recapitalise or sell out NPLs at punishing rates.

Germany solved similar problems charging the National Budget with 240 billion. Then the rules changed, Italy can no longer do it.

Source: Wall Street Italia

Translator: Cristina Ambrosi

NPL, the ECB dictates strict rules to banks: “There’s much more to do”

4 October 2017 Il Sole 24 Ore

The ECB doesn’t loosen its grip on bad loans. In fact, it has just published an appendix with the guidelines on how to manage NPLs which sees automatic devaluations of bad loans accrued starting from 2018. In the meanwhile, the Central Bank has stated that it will communicate additional “considerations” on the matter by the first semester of next year, which will most likely raise the bar even further. “The high amount of NPLs doesn’t permit the banks to issue new loans”, explained Sharon Donnery, responsible from the NPL taskforce of ECB : “Quality of debt is essential and we hope to spread a culture of provision among banks, in order to avoid in the future the accumulation of bad loans like the one that nowadays burdens the European banks”.

Basically, the document reduces the autonomy of banks on the matter of bad loans management and starting from January 2018 devaluations will be automatic: after seven years, an impaired secured credit will be written off despite the guarantees. Whereas for the unsecured credits, if reported on the books as NPL for two years, they will be completely cancelled. This procedure will apply only “to impaired credits (bad loans or old substandard loans) which will mature in 2018”, specified the representative of the ECB taskforce. However, the measure will impose a review of the policies concerning provisions already on the short period since the coverage must be immediately applied in order to comply 100% with the 2 or 7 years condition.

We must note that the ECB document, even though not binding, will impose the banks to justify their lack of compliance. Finally, important news also for the investors: “a public communication regarding the coverage of bad loans according to the year of maturity is an important instrument to make the profiles at risk accountable towards the market”, says the ECB. Another suggestion likely to be mandatorily applied.

 

Source: Il Sole 24 Ore (by Marco Ferrando)

Translator: Cristina Ambrosi

NPLs and banks: what to expect from the Financial Committee

 

The Senate Financial Committee aims at implementing by 20th October a resolution on how to manage banks’ bad loans in order to participate in the administrative and legislative part of the process.

It was stated and reported by the spokesman of the committee Gianluca Susta, adding that “the analysis of the matter will find its actualization only with the consultation with the European Committee expected by 20th October, followed then by further actions in collaboration with Abe (European Banking Authority), the European Central Bank, and the member countries in order to strengthen the European banking system”.

Susta had then again stressed that “it’s necessary to implement proactive policies in order to clean up banks’ financial statements” and that “it’s essential that banks actively manage these exposures in a stricter way than in the past and that they define a feasible strategy for the progressive reduction of the number of bad loans in order to avoid them to accumulate once again”.

 

Source: http://www.publicpolicy.it/npl-banche-cosa-bolle-6a-commissione-73185.html

Translator: Cristina Ambrosi