Italy’s Pension Funds Pressured to Fund Bank Bailout

EU stress tests are expected to show that one of Italy’s largest banks is in dire straits.

In anticipation, the Italian government is asking a group of pension funds to invest in a state-sponsored fund that would buy the bank’s bad loans.

Some reports suggest the pension funds could invest up to $550 million.

From Reuters:

Monte dei Paschi (BMPS.MI), Italy’s third-biggest bank by assets, is likely to be found short of capital under an adverse scenario when EU stress tests results are announced on Friday. A deeper financial crisis at the bank could further undermine confidence in Italy’s banking sector, the euro zone’s fourth-largest.

The chairman of ADEPP, the association of sector-specific pension funds, told Reuters that the government had asked association members to invest in the state-sponsored Atlante fund, which is working with Monte dei Paschi on the sale of 10 billion euros (£8.3 billion) in bad debts after writedowns.

“The government has made a request,” Alberto Oliveti said, adding each pension fund would decide independently after a meeting of association members later on Monday.

[…]

Under the plan, Atlante would buy the bank’s loans to borrowers deemed insolvent in a complex scheme that aims to leverage fivefold the fund’s residual resources of 1.75 billion euros, sources have said.

Atlante is ready to buy the loans at a higher price than investors specialising in buying distressed assets would offer, but that would still be below the portfolio’s net book value, blowing a hole in the bank’s account and forcing it to raise capital.

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