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'Bad loans' deal lifts Italy recovery hopes

Wednesday, January 27, 2016 - 01:29

The European Commission and Italy have reached an accord over a scheme to help Italian banks sell some of their 200 billion euros ($217.04 billion) of bad loans. As David Pollard reports it ends almost a year of often-tense negotiations.

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Italian banking shares have been under the cosh this year. Monte dei Paschi one of the worst hit - down over 40 per cent - on persistent worries over the sector's 200 billion euros of bad loans. Those worries, though, appear to be abating - after Tuesday's deal for a scheme to help banks sell those loans. Matthew Beesley is from Henderson Global Investors. SOUNDBITE: Henderson Global Investors, Head of Global Equities, Matthew Beesley (English): 'The potential for Italian banks to shed themselves of a significant amount of bad loans that are still encumbering their balance sheets could be very positive for the Italian economy because it would certainly free up capital against which lending could occur, which could further drive up loan growth and stimulate the Italian economy out of the doldrums which it has been suffering for the last six or seven years.' After a year of tense negotiations, the deal was reached when EU regulators agreed to allow Italian state guarantees for the scheme. Italian economy minster Pier Carlo Padoan said details still had to be finalised. But the guarantees should mean that loans moved into separate entities or 'bad banks' become more attractive when sold on to other investors. SOUNDBITE: Henderson Global Investors, Head of Global Equities, Matthew Beesley (English): 'The debate goes over who has to shoulder what losses and what further capital will be needed to plug those holes. Ultimately, we see several of the Italian banks looking relatively cheap relative to the risks, but the devil will be in the detail, and that's still to be fully disclosed to investors.' The bad loans have been seen as a major obstacle to Italy's economic recovery - amounting to nearly one fifth of all lending between 2012 and 2014.

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'Bad loans' deal lifts Italy recovery hopes

Wednesday, January 27, 2016 - 01:29