Does italy need a bad bank ?


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The italian Banking sector is still in a restructuring process. "Bad-Bank" or winding-up agency could be a possibility for helping italian Banks to get in Market !
Does it makes sense, do they have the courage!
Lets discuss - anche in italiano

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Does italy need a bad bank ?

  1. 1. . 2013 Does Italy need a Bad-Bank ? ..
  2. 2. Banks are measured by performance …. Real Estate restructuring needs time, financial restructuring doesn`t • Before the founding of bad-banks, all Non Performing Assets ("today everybody speaks more about Non-Strategic-Assets" ) are integrated in a "regular" Bank. • A regular Bank will be measured on margins it produces. • According to certain risk standards ( Basel II /III ) they need equity. • NPLs mean write-offs. Write-offs mean need of more equity.
  3. 3. Italian situation in 2013 …ignoring market reality on asset-values is still italian standard in 2013 ?! • In Italy many banks doesn`t admit or minimize the risks they have with their problematic assets. • Because of lack of equity they don't move to solve problems or look for an exit. • Banks or Leasing companies even misunderstand the LTV-index: Loan To Value is a indicator regarding the risk of an investment / loan. • Even mayor institutions under control of Bank Italia, understands this indicator in the way that “the value per definition can not get below the loan - even if the real-estate market shows other facts! “ • LTV doesn't mean you can only make an exit if minimum exit price equals loan. • So the main task implies the trend to minimize this NPL- Risks by ignoring devaluation, not downgrading values. • Internal workout departments are not effective for the same reason.
  4. 4. Banks tend to ignore and minimize the problem ! Scoring Systems will punish the Bank for good documentation on Bad Assets ! • So the main task implies the trend to minimize this NPL-Risks by ignoring devaluation, not downgrading values. • Trying to resolve a problem, means to admit the existence of the problem! • For that, insider know, that something will come up, but you don´t see it in the balance sheet or ratings yet. • Documentation in a regular bank could mean downgrading values or expertise, which are pointing out valuation risks and for this reason up-to-date information are often missing.
  5. 5. Fact: Problems get worse with no activities ! …how come, that at once values differ so much ? • Even worse: Since Banks will be punished by Rating systems, banks tend to improve their Rating by optimizing data regarding the Asset. • For example: An office building which had a Rental Value of 10 Million Euros is empty! If you rent it at actual market conditions for 5 Millions Euros, you have to devaluate it accordingly. If you leave it empty "value" remains…..( maybe for 1-2-3 years..)
  6. 6. Now comes the good side …… …specialized Management without mixing tasks is a solution for future stability ! • Separate the bad assets in an own structure and continue with the parts of the Bank that produces positive results. • You get a Bank which can recover, improve and serve their clients’ needs • For the bad assets the "Bad-Bank" will take care to solve the problems
  7. 7. "Liquidate the portfolio in a risk-minimizing manner" ..Restructuring means real-estate and financial restructuring ! • Bad-Banks: The good side of the story is not to mix with other business, but focus on an exit with diligent, in-depts information, • A clear strategy and the consciousness to be backed by the state. • The difference is, that Bad-Banks doesn't ignore the problems, but will work them out. • Regarding the example mentioned before, they will find an investor to sell the office-building for a market price or they will rent it out!
  8. 8. Bad-Bank: good solution, but you need time! To loose less and make it diligent, you need and get time with a bad-bank! • In August Markus Bolder, Board Member of the first “Bad Bank” in Germany, EAA - Erste Abwicklungsanstalt - explained about their efforts to set up the infrastructure and processes. • It needed more than a year to set up a real database, checking every single asset, all documents, contracts, plans. • What I realized: You need 1-2 years only to get the information structure right to be able to match compliance and auditing requirements. • To find an exit for huge volumes of assets means assets clustering in portfolios, creating a business plan, have proven information levels, maybe even in multicultural legislations or areas.
  9. 9. facts and solution  Banks are measured by performance !  Banks tend to ignore and mimize problems.  Problems get worse without activities.  Rating gets most important !  Solution: Bad Bank = agency: get time, restructure assets, professional exit Your opinion about the italian banking market ?
  10. 10. Our experience in different areas of distressed situations and project management guarantees to reach best project results Orgaplan is Advisor & Agent of CONact Happy to get your opinion, to meet you on the EIRE in Milan, ExpoReal in Munich or connect on Linkedin Located at Frankfurt and Rome we are operating and serve in the European Area often in distressed situations and active Asset-Management