This summer, fans of the non-performing loan (NPL) circus, are
in for a treat with the launch of the Italian tightrope trick.
Spurred on by the recent European Banking Authority stress
tests, the news last week that Banca Popolare di Bari will
become the first bank to utilise the Italian state guarantee scheme
and deploy securitisation technology as a means of off-loading a
€470m portfolio of non-performing loans is a significant step
forward for the global NPL market and therefore the NPL circus.
As we noted in April (Italian reform and the latent potential for CMBS),
Italy is certainly the jurisdiction to watch in 2016 and in that
vein, we are pleased to see that after months of waiting, the first
Italian NPL securitisation will be deployed as a mechanism to
address Italian bank NPL anguish. Although the application of this
technology could be a huge boost for both the European NPL market
and the utilisation of securitisation technology, the realities of
whether this will become a commercial success will ultimately be
contingent on the pricing of notes. Assuming, that these commercial
objectives can be met (and there is every chance that they will be,
given that the capital markets are currently awash with low
yielding paper) then this is likely to be the first of many deals
from the beleaguered Italian market and with it the NPL circus will
have a new trick.
The establishment of this structure will be a massive feat for
Italy, as somehow the Italian legislature has managed to conjure
the impossible: on the one hand they have been prevented from
applying state aid to address the NPL issue without "bailing
in" creditors yet on the other hand the "bailing in"
of creditors has not been a viable option given that these largely
comprise Italian retail investors. In other words by devising a
state guaranteed securitisation structure that is capable of
divesting a significant volume of NPL's, the Italians have
somehow proven that it is metaphorically possible for someone to
walk along a tightrope with their arms tied firmly behind their
back and a parrot stood on their shoulder for good measure!
Although admittedly it has taken a while for the first
transaction to reach fruition, the fact that Italy has proven that
the seemingly impossible is possible, in a world where there is
ever increasing focus on those banks that possess sizeable NPL
exposures, then it is quite conceivable that from the doldrums of
banking woes, Italy has managed to prove that there is a glimmer of
hope for those banks and jurisdictions currently struggling
under the weight of their NPL's.
As for the NPL circus, it is fantastic news that finally we can
watch the long awaited Italian tightrope trick, however as the
audience watch with bated breath, we cannot help but think, is this
is a one trick wonder or a regular addition to the show!
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