Italy: What next after the general elections?
At the recent general elections last March the majority of votes went to the two populist parties. It remains to be seen whether they will be able to form a government after a fierce fight during the electoral campaign. The deadlock parliament has raised the attention of investors and fund managers in particular, but the general sentiment is that there is no particular increase in the chances that Italy would leave the Eurozone.
Commentators also noted that immediately after the elections, spreads on Italian bonds were only a few basis points wider which meant the market was not surprised by the election outcome. Of course the market does not like uncertainty and it will be crucial to understand which actions will be taken by the new government with respect to economic and fiscal policy.
From an Islamic finance perspective it will be also very important to understand whether the parties supporting the new government will back the adoption of a dedicate tax regime to implement a level playing field along the lines of the draft law proposal which was put forward to the past parliament in 2017 and not adopted. The two parties winning the elections might have very different attitudes in this respect.
But uncertainty may mean opportunities. Some of these could be found in the consolidation process which is happening in the Italian banking sector. Investors could look for instance at Monte dei Paschi di Siena (MPS), the oldest bank in the world and one of the largest Italian banks. In July last year the European Commission approved the precautionary recapitalization of MPS for a total amount of EUR8.1 billion (US$10 billion), which included a capital injection of EUR3.9 billion (US$4.81 billion) by the Italian state, as a result of which the Ministry of Finance is now the controlling shareholder of the bank. The European Commission has approved at the same time also the 2017-21 restructuring plan of the bank which has the aim to reach an adequate profitability level for the bank, and includes the disposal of the vast majority of the bad loan portfolio as of the 31st December 2016, for a total amount of EUR28.6 billion (US$35.29 billion) of GBV, by means of a securitization transaction to occur during the first half of 2018.
So on the one hand there is a restructuring plan in place, which is consistent with the commitments the bank has vis-à-vis DG Comp and required by the Italian legislation. On the other hand there is an undertaking of the Italian State to dispose of all of its shares in MPS by the end of the restructuring period, ie within 2021. A detailed plan for the implementation of the sale must be submitted at the latest by December 2019.
Islamic investors could look at this opportunity with a view to open an avenue to Islamic banking in Italy, for instance using MPS for the launch of Shariah compliant banking products in Italy, which is home to about 1.5 million Muslims.
This article was first published in Islamic Finance news Volume 15 Issue 16 dated the 18th April 2018.