Bad bank needed in Italy to relaunch lending

Italy should acknowledge the problems faced by its banking sector and take action to free lenders of toxic assets, according to Alvarez and Marsal's partner José de Ocho.

De Ocho advised the Fund for Orderly Bank Restructuring (Frob) on the setting up Spain's bad bank Sareb.

'Denial does not lead anywhere. The creation of Sareb is the main reason why investors are coming back to Spaqin. Crystallising losses is necessary.'

De Ocho made the comments during a panel discussion on bad banks at the Expo Italia Real Estate trade fair in Milan.The session was one of the three English-language Italy International! panels organised by DLA Piper and the EIRE scientific committee for the fair. The bad bank panel explored whether Italy could learn from the workout routes for toxic real estate loans taken in Germany and Spain in a bid to restart real estate lending.

The panel heard that Spain's bad bank was set up in 2012 following the transfer of around €50 bn of toxic real estate assets owned by nine major local lenders. The new entity bought assets - in large part loans backed by residential real estate - for an average discount of 55%, and financed the operation with treasury bonds.

The Frob is the major shareholder in Sareb, with a stake of 45%.

Erberto Viazzo, head of transaction advisory support financial services at Ernst & Young, said that the bad bank model used in Spain and Germany may serve as a roadmap for Italy.

'The size of the banking problem in Italy has reached such a level that a single lender can no longer solve it,' he noted. 'Creating an asset management company for the bad assets is a good way to go forward. However, I think this could be smaller in Italy and managed by the private banks.'

While Spain transferred assets from a multitude of bank lenders to a single asset management company, Germany has created bad banks to own the toxic properties of one bank and facilitate the sale of the assets.

Germany's bad bank Erste Abwicklungsanstalt took over €78 bn of real estate in 2010 from WestLB and subsequently another €100 bn from its subsdiary Westimmo in 2012. Since then, the company has wound up €68 bn of assets and created €990 mln of revenues for the state.

Another bad bank, FMS Wertmanagement, is shedding the assets of Munich-based Hypo Real Estate AG, which was bailed out by the German government in October 2008 and nationalised a year later. The performing unit was spun off as a separate entity and rebranded as pbb Deutsche Pfandbriefbank ahead of a sell-off at a future date.