Italy

Italian banks are stuck in what stressed-debt experts call purgatory, still forced to pay a heavy price for their past sins despite loan data that suggests they are turning a corner. The rate at which loans are souring hit an eight-year low last year, but banks still face some 8 billion euros (6.74 billion pounds) a year in fresh writedowns, based on past rates at which already-soured loans have gone into outright default, the International New York Times reported on a Reuters story.

Struggling Italian clothing company Stefanel will ask a court for more time to submit a debt restructuring agreement with its creditors, two sources close to the situation said on Tuesday. In November, the court in Treviso, northern Italy, granted Stefanel until March 6 to file the documents, the International New York Times reported. "There is an agreement, but some details still need to be ironed out, both with creditor banks and potential new investors," one of the sources said.

Italian banks are stuck in what stressed-debt experts call purgatory, still forced to pay a heavy price for their past sins despite loan data that suggests they are turning a corner. The rate at which loans are souring hit an eight-year low last year, but banks still face some 8 billion euros (6.74 billion pounds) a year in fresh writedowns, based on past rates at which already-soured loans have gone into outright default, the International New York Times reported on a Reuters story.

Italy is looking at a €5bn state rescue of two struggling regional banks as the eurozone’s third-largest economy takes renewed steps to shore up its troubled banking system, the Financial Times reported. The rescues of Veneto Banca and Banca Popolare di Vicenza, which still require regulatory approval, would be a “precautionary recapitalisation”, according to people with direct knowledge of the discussions. This is a mechanism that allows eurozone states to pump state money into banks without infringing state aid rules.

A welcome dose of good news for the Italian economy. Annual industrial production in the eurozone’s third largest economy accelerated at its best pace since 2010, raising hopes of an uptick in economic growth for a country beset by a host of political and banking woes in recent months, the Financial Times reported. Overall output rose 1.6 per cent in 2016 – the best annual performance in six years. Industrial production accounts for just under a third of Italian GDP.

The abandoned farmhouse surrounded by acres of prime Tuscan vineyards, known as the Aquilaia estate, stands as a monument to failure—to the tens of billions of euros in bad loans that sank the world’s oldest bank, Bloomberg News reported. Born at about the same time as Michelangelo, Banca Monte dei Paschi di Siena crumbled under the weight of a lending binge whose legacy has become the headache of Italian taxpayers after the government said in December it would take it over. While the bank says it has already accounted for much of the potential losses, skeptics say the signs aren’t promising.

Italian banks are speeding up the sale of distressed loans backed by real estate, in an effort to mend balance sheets weakened by enormous piles of debt, The Wall Street Journal reported. But the banks still have a long way to go. For many loans, they are assigning a higher value than what buyers are willing to pay, meaning that the process of unloading bad loans is likely to remain drawn out. Bolstering the outlook are signs that Italy is coming out of a property slump, which would make it easier to sell more distressed loans. Italy is lagging the U.S.

Another blow to national pride: on January 13th DBRS, a Canadian rating agency, downgraded Italy’s sovereign debt, stripping the country of its last A rating. Government bond-yields rose; so will the cost of funding for Italian banks. Erik Nielsen, chief economist of UniCredit, Italy’s biggest lender, calls the extra €5bn ($5.3bn) or so banks will have to put up as collateral for their loans from the European Central Bank (ECB) “immaterial”, The Economist reported. Still, it is a burden they could do without.

As the new Italian government of Paolo Gentiloni hammers away at a rescue plan for beleaguered lender Banca Monte dei Paschi di Siena SpA, it’s suddenly contending with another corporate crisis: the future of Alitalia SpA, Bloomberg News reported. Executives from key investor Ethiad Airways and Alitalia -- which went bankrupt in 2008 after rescue attempts involving the state and private investors failed, and which teetered on the brink of collapse in 2014 -- are set to meet Italian ministers on Monday, the carrier based in Abu Dhabi said in a statement Sunday.

The Italian government is likely to put in about €6.5 billion to rescue the country’s third-biggest lender Monte dei Paschi di Siena, more than initially expected, sources close to the matter said, the Irish Times reported. The Italian lender needs about €8.8 billion of capital to bolster its balance sheet, the European Central Bank (ECB) said, up from previous estimates of €5 billion. The calculation is based on the results of a 2016 stress test, the bank said in a statement late Monday, citing two letters from the ECB that it received via Italy’s finance ministry.