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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (99531)	3/24/2013 11:07:03 AM
From: Haim R. Branisteanu	Respond to of 217925

Is there a problem in Rome? - Bank of Italy Official: Banks Must Push Business Borrowers to Bonds 24-Mar-2013 By Christopher Emsden ROME--Italian banks and their business clients need to overhaul the way they operate, shifting funding to capital markets and off vulnerable lending books, a senior Bank of Italy offcial said in a weekend speech in Perugia. Non-performing loans have risen to 6.9% of all loans in Italy, and the figure is almost twice as much if all kinds of impairment are included, said Fabio Panetta, deputy director-general of the central bank. Writedowns and write-offs of soured loans have absored 60% of Italian banks' operating profits from 2009 through 2011, he said. The strains on banks, which are reducing their loan exposure to their home country, need to be alleviated by higher capital reserves, cost cuts, lower executive compensation and curtailed dividends, but that is still insufficient as hopes of an economic recovery grow clouder amid domestic political uncertainty, Mr. Panetta said. But Italian banks also need to change their business model, helping and even obliging companies to tap capital markets for debt finance instead of exclusively relying on bank loans, he said. "Conditions are favorable" for lenders and borrowers alike to pursue that goal, Mr. Panetta said. Central banks are flooding markets with liquidity, but the nature of the process tends to favor tradeable securities. Broad distrust of banks make it harder to use monetary policy to ease real lending terms. Italy's banking system is not large as assets amount to 2.7 times gross domestic product, a lower ratio than all advanced economies other than that of the U.S., Mr. Panetta noted. The problem is that companies rely on bank loans for two-thirds of their funding mneets, twice the level of France, he said. Total equity financing of business balance sheets is in line with other wealthy economies, but 80% of the equity capital is not on traded markets, he noted. The remarkable shortage is in corporate bonds, which account for only 8% of corporate funding needs, he said. That shortfall accentuates pressures on banks which may choose to batten down their hatches and reduce loan volumes, he said. Mr. Panetta noted that a slew of initiatives over the years, particularly tax incentives aimed at encouraging companies to list shares or issue debt through capital markets, had largely failed to elicit interest from a business class averse to "opening up" their balance sheets to scrutiny. But banks, too, were partly to blame as many lenders believed they could exploit the relative absence of captial markets to their favor, Mr. Panetta said. Companies that have direct access to equity and bond markets tend to enjoy a lower cost of credit and free them from the risk of being "captured" by their principal lender, he added. The thrust of Mr. Panetta's analysis can be applied to Italy's public and household sectors, as the crisis has shown that private assets are not seen as a guarantee of sovereign risk. The country's families have almost EUR9 trillion in private assets according to the Bank of Italy's estimates. That's more than four times Rome's EUR2 trillion in sovereign debt - but also 20 times the amount of taxable labor and pension income Italians declared in 2011. The crisis has shown that tapping assets is difficult and so that wealth doesn't offset risks investors perceive in Italy's sovereign bonds. Write to Christopher Emsden at chris.emsden@dowjones.com #CHCEmsden (END) Dow Jones Newswires