Italy agrees to set up bank rescue fund

The new fund, called Atlante, was announced by Prime Minister Matteo Renzi following a meeting of regulators and ministers in Rome, and will help banks to raise capital and unload bad loans amid growing worries about the sector’s health.

The fund will be established by Italian asset manager Quaestio Capital management SGR, which will buy junior tranches of bad loans from the banks and ensure the success of their stock sales.

Although the plan has been backed by the state, it will be managed by a private manager so that Italy does not contravene European Union rules against providing state aid.

Italy’s finance minister, Pier Carlo Padoan, said: "The fund is an instrument that could contribute to completing the process of strengthening the solidity of the Italian banks and expanding the market for non-performing loans."

Lenders UniCredit, Intesa Sanpaolo and UBI Banca – three of the country’s largest banks – will create a backstop facility to bailout out smaller peers.

The meeting also led to an agreement to reform Italy’s bankruptcy laws.

“In the next days we will make the bankruptcy procedure faster and more simple so that everyone can be assured of getting their money back in a reasonable timeframe,” Renzi said.

At the moment, it takes around eight years to recover bad loans compared with two to three in the EU.

RBC Capital Markets analyst Adrian Cighi said: “While the full details of the plan are still missing, we see this version of the bad bank as insufficient to address the three key systemic weaknesses of the Italian banking system.

“While in the short term the fund might provide some relief for the upcoming cash call on Popolare Vicenza, Veneto Banca and Banco Popolare (all due within the next six months), we see it as insufficient to deal with the broader non-performing loan issue and the systemic issue of BMPS. As such, we see any rally in the Italian banks as likely short lived.”