Report on the Italian Banking System: NPL, Bad Bank and M&A Wave

bad bank

Markets all around the world have been characterized by high volatility and unsatisfying returns in recent weeks, primarily because of the dramatic drop in oil prices and the alarming data on China’s growth, which has failed to meet analysts’ expectations for the fourth quarter of 2015 by about one percentage point. The issue of growth appears not to be limited to China, with the ECB warning that economic recovery in Europe has not yet picking up as desired, despite the large scale quantitative easing implemented by Mario Draghi. Among the European countries suffering from this situation of semi-stagnation is, of course, Italy.

While there is a good number of different reasons why Italy is failing to achieve recovery (most, but not all of them, attributable to the country’s failure to implement structural reforms when the time was right), one current impediment is definitely the situation of its banking system. In fact, the Italian stock market has seen tremendous sell-offs of troubled institutions such as Monte dei Paschi di Siena (MPS), amid fears of bankruptcy. Just a few months ago, four smaller Italian banks had in practice gone bankrupt (Banca Etruria, Banca Marche, Cassa di Risparmio di Chieti, Cassa di Risparmio di Ferrara), if not for a government decree that “revived” them, saving jobs and depositors’ money, but charging most losses on creditors (which were for a good part simple retail investors).

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