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!