The ECB has ordered the gross non performing loans at Italy’s 3rd largest bank (Monte dei Paschi di Diena) be cut from €46.9bn at the end of 2015 to €38.9bn in 2017 and €32.6bn by the end of 2018. Shares have fallen to 32.9 cents (-14%) leaving its market cap at €964mn or 1.4% of NAB in Australia.
Last year four Italian banks were rescued and it seems that since Lehman collapsed in 2008 non performing loans (NPLs) have soared from 6% to almost 20%. Monte Dei Paschi De Siena, a bank steeped in 540 years of history has 31% NPLs and its shares are 99.9% below the peak in 2007. Even Portugal and Spain have lower levels of NPLs. The IMF suggested that in southern parts of Italy NPLs for corporates is closer to 50%!
Italy is the 3rd largest economy in Europe and 30% of corporate debt is held by SMEs who can’t even make enough money to repay the interest. The banks have been slow to write off loans on the basis it will eat up the banks’ dwindling capital. It feels so zombie lending a la Japan in the early 1990s but on an even worse scale.