Italian banks and NPL Update 2020-0

Intesa Sanpaolo kicked off long-awaited consolidation among Italian banks with a surprise 4.86 billion euro ($5.3 billion) takeover bid for smaller rival UBI Banca. (my article in Italian).

This seem to be quite the opposite strategy of Unicredit that is aiming at gaining efficiency before seeking growth that may result in additional risk and capital increase requirement.(my article in Italian)

The move of Intesa Sanpaolo appears to be in line with the revised approach of European Central Bank  that recently softer its stance toward tie-ups as the sector struggles to make money against backdrop of low rates.

Cerved granted a period of exclusivity to Intrum Italy for the negotiation of the potential sale of the Credit Management division, which deals with the management and recovery of receivables. The decision falls within the context of a “process aimed at deepening the hypothesis of enhancement of Credit Management”. Last September, Cerved had given a mandate to Mediobanca for the “exploratory evaluation of strategic options” (read the press release)

According the last Banca IFIS NPL Market Watch reduction in NPE stock is continuing in Italy and the next hotspot is expected to be the UTP segment

Even though NPE are leaving banks’balance sheets the workload for credit management industry appear to be increased rather than reduced

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Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

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Very Successful Panel on NPL and Bank Fraud

Saturday 15th Feb 2020 I had the pleasure and the honor to attend a panel on “NPL e Frodi Bancarie” sharing the desk with Gianluca Codagnone, Managing Director at Fidentiis, Giovanni Bossi, Founder of Cherry NPL and -Head Clessidra Restructuring Fund and Gianni Mion, Former president of Banca Popolare di Vicenza.

The panel was part of the 3rd Liberi Oltre le Illusioni live event a 2 days convention includingi 12 panels and a morning assembly chiared by Elsa Fornero, labour economist and former labour ministry of Italian Government.

Immagine

The has started with a brief introduction of Italian market and key info and a short recap of most relevant facts in NPL marker during recent years.

The discussion has continued with a an insightful analysis of main trends and drivers of distressed market, including interaction between regulation and market players.

The complete video of the panel is available on Youtube.

Liberi oltre le illusioni is a Youtube Channel aimed at provide independent and fair information regarding Italian Politics and Economics and is a brend created by non profit Foundation Fondazione iCinquecento.

Link to Youtube Channel

Link to Facebook Page

Opencollective

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Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

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#Savethedate NPL e UTP Forum – Palazzo Mezzanotte 5th March 2020

Proud to be speaking at the next edition of NPL & UTP Forum on March 5th 2020 at Palazzo Mezzanotte, Milan. This year focus will be on The new UTP wave

To read the full agenda and subscribe see the event page

Featured Speakers inlcude:

The program includes keynote speeches and panels as detailed below

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Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

Parole Povere

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Will ECB become less demanding on Banks’ M&A?

The European Central Bank (ECB) published the outcomes of its 2019 Supervisory Review and Evaluation Process (SREP). While capital requirements in 2019 remain unchanged from 2018, at 10.6%, some significant concerns remain regarding business models’ sustainability, with low profitability as the most critical issue and decreasing quality in internal governance.

As reported in advance by Wall Street Journal a softer stance toward tie-ups could be one the resmpones coming from reuglatory authorities as the sector struggles to make money against backdrop of low rates.

SSM under Danielle Nouy used to require capital increases before allowing mergers (e.g. Banca Popolare di Milano and Banco Popolare in Italy) and this affected the convenience of these deals. Andrea Enria’s new course it seem that this approach may change as the case of Unicaja + Liberbank potential merger seem to prove.

Mr. Enria also acknowledged relevant achievement in NPL Reduction since banks with high levels of non-performing loans (NPLs) are broadly meeting the targets for cleaning their balance sheets.

When the ECB assumed its supervisory responsibilities five years ago, the volume of NPLs held by significant institutions stood at around €1 trillion (an NPL ratio of 8%). By the end of September 2019, it had been reduced to €543 billion (an NPL ratio of 3.4%).

 These banks are recommended to keep a strong focus on continuing to improve their credit risk profiles.

  • Banks with higher levels of NPLs are expected to have three-year reduction strategies in place for NPAs (non-performing loans and foreclosed assets[3]).
  • The following represents the actual existing stock of non-performing assets for year-end 2018 for 32 high-NPL banks[4]. The 2019-21 bar charts represent the banks’ own projected level of volume reduction of NPAs over the period end-2019 to end-2021.

  • As part of the NPL reduction strategies, banks are expected to forecast the reduction of NPLs by portfolio, reduction option and vintage bucket.
  • Based on the following chart, the banks are projecting a reduction in volume of very old NPL vintages over the period 2019-21. Vintages of two-five years are projected by banks to remain constant and there is a projected increase in the relative share of unlikely to pay loans.

Bottom on SREP 2019 :

  • SREP CET1 requirements and guidance (excluding systemic buffers and countercyclical buffer) for the 2019 cycle are stable overall at around 10.6% compared to the 2018 cycle.
  • Business model remains a key supervisory focus with supervisors highlighting banks’ business model sustainability as a key risk area of the SREP 2019.
  • Governance remains a risk area of particular supervisory concern due to deteriorating scores driven by limited effectiveness of management bodies, weaknesses in internal controls, poor data aggregation capabilities and weak outsourcing arrangements.
  • When the ECB assumed its supervisory responsibilities five years ago, it stood at around €1 trillion (8% NPL ratio). By the end of September 2019, the volume of non-performing loans held by significant institutions had been reduced to €543 billion (3.4% NPL ratio).
  • Operational risk driven by specific one off losses and increased IT/cyber risk for a number of significant institutions represents a key area of ongoing focus for supervisors.
  • Overall, the two key risk management processes for capital and liquidity – ICAAPs and ILAAPs – show significant need for improvements, also in light of their role in the SREP which will increase in the future.

Link to ECB Press Release

Link to  Aggregate SREP outcome for 2019

Link to Pillar 2 Requirement

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

Parole Povere

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The Wise Guys Democracy

Modern societies are quite complex and it is virtually impossible for anyone to be completely and correctly informed on what is going on. Even assuming the access to a complete and correct set information (no fake or misleading news), understanding such a complexity requires a remarkable effort in terms of time deployed not to mention skills and abilities needed to achieve a full comprehension.

This has a relevant consequence for democratic process: we select candidates at political and administrative elections without fully understanding the consequences of our choice.

This phenomenon amplifies at least 3 common flaws of modern democracies:

1-The ability of lobbies and any other minorities with shared interests to promote policies aimed at obtaining gains for themselves at expense of the others because the less voters know and understand, the easier is to approve rules that can harm them.

2-The preference for policies with short term benefits over those with immediate costs and greater long term benefits because the balance between present costs and future gains requires time and education to be correctly assessed

3-The electoral competition based on emotional narratives and irrational beliefs rather than on pragmatic discussion of real problems because wrongly informed an poorly educated voters are the most likely target for political strategies based on emotion and ideology

How can all these problems be mitigated by social media technology?
The mechanism of social networks has proved to be quite effective for sharing information with a large number of people and to manage the individual reputation of community members.


This mean that the burden of fact checking activity and convenience assessment of public policy proposals could be conveniently split among a large number of individuals rather than carried out by a single institution and that reliability and independence of the analysis could be guaranteed by a peer review mechanism.

Assume to have a mass collaboration system similar to wikipedia with 2 main goals: 1) verify news and debunk fakes 2) perform a convenience analysis of political programs and proposals. Than imagine that this mechanism is part of a wider social network similar to Twitter so that content produced are user friendly and easy to share. Assume also to have a set of rules that grant reliability of content produced, minimization of noise and consistency of the network. Finally assume to have a compensation scheme that collects donations by users satisfied by the content found on the network and distribute rewards to those who produce them.

We may call this very peculiar social network “The Wise Guys Democracy” anddesign it for a large number of basic users that we may call “Citizens” and a limited number of “Wise Guys”. The system is based on 3 main rules:

Rule 1only wise guys can produce and edit contents (citizens can file questions and answering citizens questions is supposed to be the main driver of content production by wise guys)

Rule 2: the “wise guy” status is based on a reputation score determined by feedback received by other wise guys (administrators of the system creates the first wise guys and are supposed to monitor contents and user activity)

Rule 3: wise guys receive a reward for their activity financed with donations collected by other users (this is aimed to create a stronger incentive to wise guys )

Strong Lobbyists with deep pockets can hardly be defeated by a non profit initiative aimed at promote transparency and it would be naive to think otherwise. Nevertheless if a precise and independent assessment of any new policy proposal were available in a user friendly format it would be easier for the public to be aware of the consequences of their political choices and it would be harder for lobbyists to charge the public with unnecessary burdens.

The final target is not to have people make always the best decisions (it would be questionable how to determine what the best decision is) but to avoid as often as possible the worst ones.

The Wise Guys Democracy is a concept idea for a non profit and open source project aimed at improve transparency in political system and enhance awareness of voters regarding their choices. A more detailed description of how the project is designed will be provided in a separate post.

Originally published on Medium

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Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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Bankit update on NPLs’ Recovery Rates

The number 18 of Bankit Notes on Financial Stability and Supervision provides an update to NPLs’ Recovery Rates analysis performed in number 13 and 11. The note also illustrates the results of the yearly survey on NPL sales, conducted by Bank of Italy starting from 2016.

While it may be interesting and somewhat useful to observe trends in recovery rates and sale prices some caveats should be taken in consideration before trying to extract any conclusion.

Recovery of sold position is affected by several relevant factor including

  1. Sale to private entity vs sale vs GACs vehicle or state sponsored entity (AMCO, Altas Fund, REV)
  2. Sale within a market based restructuring plan (Unicredit, Banco BPM) vs “firesale” within a State driven process (MPS, Veneto Banca, BPV etc)
  3. Sale through a JV project with investor servicer (DoValue-Fortress, Intrum-Intesa,Banco BPM-Credito Fondiario) vs straight sale

Performance of recovery of not sold positions may be affected by the sale process e.g. we may assume that sold positions include the 2 extremes of best collateralized loas in order to get an higher price and oldest positions with highest provisions in order to help match buyers expected returns.

Given that the main price driver of secured loan sale is collateral evaluation that is substantially affected by location and asset type (a villa in Capri is quite different from an office in Reggio Calabria) maintenance and building completeness.

Looking at closing activity may be significant to get an idea of what is going on with banks’balance sheets, but it should be considered that a portion of these loans is still open on  GACs SPV with notes 

Finally we can say that assessing recovery performance of NPLs is a quite complex issue that can be properly evaluated only when all expected collections have been realized (not during intermediate sales) and taking in account recovery cost that may be significant.

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

@massimofamularo

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GLG – Gerson Lehrman Group – Council Member

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DBRS insights on Long-Term Nonperforming Loans

DBRS Morningstar Illustrative Insights delivers interesting and easy-to read infographics commenting on the global economy, one at a time. Today a very interesting one has been published regarding Long-Term Non Performing Loans.

NPLs remain a focus for the European Commission as well as various European countries and banks. Both in terms of tackling the current issue amongst several countries, and in terms of ensuring a faster resolution of any potential future build-up of nonperforming loans. On 27 November, the European Commission put forward its position on a new mechanism for out-of-court enforcement on new loans to the European Parliament.

Accordgin DBRS and Morningstar this proposal is positive, but it realizes only a small marginal step towards helping to improve the handling of nonperforming loans

The proposal entails a common framework and mechanism for out-of-court settlements. The concept is to draft into new loan agreements a mechanism that would allow a creditor to take possession or sell on the collateral of the loan. These loan agreements would only be allowed for business loans where the borrower’s primary residence is not included in the collateral. They would only be for new loans once the proposal is adopted within national frameworks. The directive also aims to set some minimum requirements for adoption for countries to adopt for out-of-court settlements.

Read the full doc on DBRS website

DBRS has also analyzed the securitisation scheme recently adopted in Greece (similar to Italian GACs), which allows the banks to offload a large number of their aged loans.

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