Renovate and sell. In fast times. With the aim of encouraging a revaluation of the banks in which it invests, sharing and supporting the restructuring plan This is the objective of the Atlante fund presented today to the financial community, investors and journalists gathered in a packed hall of the Four Seasons Hotel in Milan . “We don't want to solve the problems of all the banks – said the President Alessandro Penati – but change things selectively and eliminate the risk of queues”. In financial jargon it is called tail risk and we have had a practical example of it in recent months: after the bankruptcy of the four banks at the end of the year and the application in the new scenario that provides for the bail in, the market has started to apply an additional risk to all other banks that could find themselves in difficulty. So much so that now many of them are worth less than their book value on the stock exchange, i.e. less than their assets. In a vicious circle which makes the capital increase more probable and increases the probability that it will not be financed. Experts call it herding behavior. The fund's intervention will make it possible to break this vicious circle by laying the foundations for a re-rating of the sector.
The fund will be able to invest up to 70% of its resources in "banks with capital ratios lower than the minimums established in the context of the SREP and which therefore carry out, at the request of the Supervisory Authority, interventions to strengthen capital through capital increases". And then he will become a shareholder. Governance rules are crucial: Quaestio Capital Management, which manages the Atlante fund, "does not exercise direction and coordination over the banks, nor does it subject them to unitary management". The asset management company "will vote on the appointment of directors in the shareholders' meetings of the banks owned by the fund" and will do so "in compliance with stringent independence requirements". Lastly, the asset management company "does not intervene in the ordinary management of the bank".
Banca Popolare di Vicenza is the first banking dossier that the fund has to manage. On the Popular Bank of Vicenza "There was a reasonable bail-in risk and now it's gone," said Penati, president of Quaestio. Thanks to the participation of the fund, Penati underlined, "the debt structure of Popolare di Vicenza is now at zero risk". As for Veneto, Banca Penati wanted to clarify: “They have to come to us, I can't be the one to go to them. I don't know if there will be a contract or what kind of contract there will be."
NPL, BRING BID AND ASK NEAR. NO TO LOAD PRICES
The second important bank in the operations of the Atlante fund is the purchase of Non-performing loans with the stated aim of "giving the market an electric shock to get it started and facilitate the sale and recovery of the system". The regulation provides that at least 30% of the fund will be invested in the NPLs of a plurality of Italian banks. The fund will finance or co-finance the equity tranches of the securitizations with the Gacs scheme (the instrument launched by the Government to facilitate the development of the market for the securitization of Npl loans).
The goal is to create a centralized system that allows eliminating those factors that make the purchase and sale spread too wide, which today hovers around 30-500%, a percentage that today does not allow supply and demand to meet and therefore to form a market. Without going into the technical details, the fund has the objective of increasing the sale price towards higher values than the current ones which discount, unlike what happens in the more efficient American market, poor information efficiency, the lack of a centralized place for meeting demand and of the offer and high costs for the search for information.
However, let the bankers resign themselves: they will not be able to sell their non-performing loans at book prices. Of course, a lot will depend on the individual non-performing loans (what are they? What guarantees are there? What are the recovery times?), their market price and Ma Penati was clear on this: it won't buy the banks' load prices. "The fund will not work in this way - he explained - If each bank comes to give me its Npl at book value how can I give a return?".
In fact, the fund aims to remunerate the capital invested by lenders, 4,29 billion from 67 investors, including large Italian banks and entities such as general insurance, with a return of 6% per annum with a fund duration of 5 years which can be extended for another three from year to year. The investment period will end in November 2017. For the following six months, and therefore until May 2018, it will only be possible to complete operations that have already started. Finally, until 29 April 2021, the fund will only be able to carry out divestment operations.
ATLAS SUPPORTS THE WORLD. BUT ONLY IF OTHERS GIVE A HAND
However, the interlocking of the other pieces of the puzzle is essential for the success of the whole operation. Here are the key points repeated several times by Penati himself:
1) the State must change the credit collection procedures and bankruptcy procedures quickly because the legal system is one of the pillars of any financial system; “Our relations with the government and with Rome are zero point zero,” Penati specified in response to a question on this point.
2) the ability of banks to quickly return to operating profitability because the Npl disposal time depends on the ability to generate new profits that absorb old losses, without causing capital increases and bail-in risks
3) the absence of negative shocks in the next two years (such as a Eurozone crisis or Brexit).
Now all that remains is to see if the results come. In that case, the fund's capital raising could be reopened. “The fund has closed but the expectation is to reopen it. My proposal will be to reopen it and obviously it reopens on the basis of the results", said Penati, underlining that "putting together a 4,25 billion fund in 15 days I think is an historical record".
