World Economy

Bad Bank Talks Move Ahead

Bad Bank Talks Move Ahead
Bad Bank Talks Move Ahead

Italian Finance Minister Pier Carlo Padoan said the government is conducting a “very good conversation” with the European Commission on a plan to help banks offload bad debt, as additional national measures to ease the sale of non-performing loans will be introduced this coming week.

“We are working on a guarantee scheme which is part of a strategy” to accelerate the disposal of bad loans, Padoan said in an interview Saturday with Bloomberg Television at the World Economic Forum in Davos, Switzerland. Talks with the Commission “will not be stalled, and in any case we already have in place measures that will help.”

The Italian government and the commission are discussing a plan to allow buyers of banks’ bad loans to purchase a state guarantee on them to reduce the price gap, said a person with knowledge of the talks. Under the terms being reviewed, the loans would not be bundled into a common pool backed by the state, said the person, as was previously envisaged. The person spoke on condition of not being further identified.

The Italian project to create a bad debt has been blocked for months by the European Commission, which considers any state involvement in the disposals as possible state aid. Padoan declined to comment in the interview on the term of the structure and the timing. Negotiations with the European Commission “are down to details,” and focusing on the pricing of guarantees, he told reporters Saturday.

Italian banking shares on Friday extended a two-day rebound as officials signaled they’re moving closer to an agreement on setting up a bad bank for soured loans. In Italy, banks’ bad loans reached a high of €201 billion ($217 billion) in November, as record-low interest rates and a struggling economy squeeze profit margins. A mechanism to remove bad assets will help lenders clean up their balance sheets and spur lending.