Rome – The fund Atlas, created last night to help troubled banks to place their capital increases and cleanse by suffering, is a very imperfect but probably inevitable.
In a few days the Banca Popolare di Vicenza will ask € 1.75 billion to the market, as required by the European Central Bank, and there is a high risk that many actions remain unsold. UniCredit, which ensured the recapitalization, could be forced to having to pick up the pieces, in an operation which in turn would create a hole in its accounts. In the background remain the battered balance sheets of many Italian banks, most notably the Monte dei Paschi di Siena, who are struggling to sell their sufferings on the market. Atlas, named in memory of the titan who was holding on his shoulders the vault of heaven, should also try to support them.
The solution has a great advantage: the capital of the fund is almost entirely private. The exception is Cassa Depositi e Prestiti, which is controlled by the Ministry of Economy and benefits from a public guarantee. His participation in the operation, although limited, it remains highly questionable also because it could lead to a new dispute with Brussels. For the rest, the new European state aid rules have avoided that taxpayers would end to bear the bank losses. This is good news for a country that has accumulated a huge public debt also due to continuous public bailouts of shabby companies.
The “system” will cause clearly their noses to the purists of the solutions market. In the beginning, it would have to go to an orderly resolution of the smaller banks that do not succeed in finding new capital. But the institutions that are participating in the rescue operation must have felt sufficiently high the possibility of systemic risk arising from the closure of one or more banks. Atlas must therefore be seen as an insurance fund to which our financial institutions have decided to participate.
However, the limits remain. First of all sizes not really titanic, given that the fund is only 6-7 billion euro. In the coming months, in addition to the capital increase of 1.75 billion for Vicenza, the banking world will see Veneto Banca and Banco Popolare ask another 2 billion market. At worst, Atlas may have to commit more than half of its capital in these three operations. Of course, the hope is that the presence of a “back-stop” entice private investors to buy the stock, avoiding this risk.
Second, by tying banks like the climbers in a consortium, Atlas increases inevitably systemic risks. The objection is that banks are already extremely vulnerable to what happens to their competitors, as shown by the widespread losses in the stock market in recent months, which also involved institutions better capitalized. But governments and regulators should help to loosen these ties, not to strengthen them.
Finally, there is a strong risk that the transaction on the suffering is not entirely dictated by economic logic. Atlas is committed to operating on the junior tranche of the securitization of non-performing loans, in order to facilitate the entry of private investors who prefer to focus on less risky parts and on which, among other things, there can be a public guarantee. The choice of such operations support will, however, complex. The part of the fund that will buy the unsold shares of the capital increases is a favor to those banks, first of all UniCredit, which were likely to have to pay for a possible failure. The other institutions may want to ask in return for greater attention on the sale of their suffering, perhaps selling the offending packages to a non-market price. From this point, will be crucial management Quaestio fund, which will fight with demands and discontent from various investors.
The main danger is that the operation simply end up postponing the inevitable. And ‘why the best way to troubled banks is to attract capital from new investors, improve business plans and cut costs. From this point of view, the best news of the day yesterday could be the promise by the new government standards to speed up debt recovery. Not always the titanic efforts are necessarily the most effective.
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