Following the collapse of four Italian banks due to a range of bad loans, special EU sanctioned tools were instantiated to deal with their bad debts and recapitalise them in an orderly manner. As part of the process Oliver Wyman will support the Italian authorities find buyers for the bad debt.
According to recent research from Oliver Wyman and Intrum Justitia, Europe faces more than €580 billion in non-performing loans (NPL), of which 90% is held by institutions in developed countries. Italy holds the largest stock of NPLs at €161 billion, or 18% of the stock – with SME loans making up 78% of Italy’s NPLs. The effect of these NPLs has in the aftermath of the crisis seen several banks in the country face financial difficulties, including Banca delle Marche, Banca Popolare dell'Etruria e del Lazio, Cassa di Risparmio di Ferrara and Cassa di Risparmio della Provincia di Chieti. Last year these four banks – all have a focus on lending to the SME market – succumbed to their debts and entered into special administration.
As part of the European framework to deal with banks that are in trouble within EU member states, a number of rules regarding how failing banks are dealt with have been put in place. The aim of the rules, called the ‘EU Bank Recovery and Resolution Directive’ (BRRD), is to reduce the requirement for state aid by, among others, creating a set of ‘resolution tools’ to support troubled banks through organised restructuring in a manner that sees shareholders and creditors of the bank (under resolution) bear an appropriate part of the losses.
As part of the framework to support the four banks through their current troubles, Italy set up a resolution fund that will provide €3.6 billion to cover the negative difference between the transferred assets and liabilities and to capitalise the bridged banks. The funds themselves have been financed by contributions from the Italian banking sector to the resolution fund. According to sources the four banks' impaired assets were written down by more than 80% to €1.5 billion, and the lenders' assets and liabilities, will be sold in coming months. Customer deposits will remain fully protected.
The restructuring effort was provided the go ahead by the EU late last year, and consulting firm Oliver Wyman, which in recent years provided support to many failing banks as well as supported the ECB’s stress testing overhaul, as well as French bank Societe Generale, have been called in to advise on the sale of the assets and debt of the recued banks. “Oliver Wyman will be the strategic adviser and give support on how to organise the sale of the four bridge banks to maximise the outcome,” said an unnamed source to the Italian daily La Repubblica.
The Boston Consulting Group has too been active in the Italian Banking arena in recent months, hired last year to support the Italian Central Bank with the establishment of a ‘bad bank’ asset management company, that will be used to deal with the pile of non-performing loans on the bank balance sheets left over from the financial crisis. In another major transformation supported by consultants, BNP Paris hired both BCG and Oliver Wyman to manage a major cost restructuring effort.