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Italy’s living dead

Italy doesn’t mince its words on troubled assets. Loans in danger of becoming non-performing are dubbed ‘incagli’, which means ‘run aground’. When they become the ‘NPLs’ we hear so much about, they are ‘sofferenze’, which simply means suffering.

Sadly, smaller members of the country’s sprawling, outdated banking system are not subject to the same sort of hard-headedness.

Quaestio Capital Management is to set up a fund called Atlante, which will use about €5bn of capital to back-stop upcoming bank capital raises.

The main focus is imminent rights issues from Banco Popolare di Vicenza and Veneto Banca, which need to raise about €3bn between them to avoid resolution.

It is a neat collaborative solution from the Italian banks, whose shares have slumped 40% in the last 12 months. Investors were uneasy after the swift resolution of four small Italian lenders in November.

But if banks are unable to raise capital without the help of stronger institutions, then they need to be allowed to die. That’s what bail-in is for.

UniCredit, which is underwriting Vicenza’s deal, and Intesa Sanpaolo, will reportedly stump up €1bn each, while state-backed Cassa Depositi e Prestiti will only provide €500m to keep Europe’s state aid police onside.

Money to spare after the capital raises will be used to tackle the banking sector’s €360bn NPL problem, most likely at prices well above those that banks have been offered by truly private investors so far.

So the stronger banks — and an investor 80% owned by the government — will take on the riskier tranches of weaker lenders’ non-performing loan securitizations, while the government guarantees any of the senior tranches private investors can be tempted into buying.

Zombie banks will be walking the continent for some years yet.

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