ECB may buy bundles of bad loans from Italy

The Italian Treasury has revealed that the European Central Bank (ECB) is in talks with the Italian government over the possibility of buying bundles of bad loans as part of its asset-purchase programme and accepting them as collateral from banks in return for cash. This move would be a big boost to the recently approved Italian plan aimed at helping its banks to offload some of their €200bn ($225bn) of soured credit and free up resources for new loans. However, it is also likely to fuel a debate from other countries about whether the ECB is taking on too much risk buy buying asset-backed securities based on loans that have not been repaid for roughly three months. 

Reuters with a story that the ECB are to buy packages of bad loans

The ECB are said to be in talks with the Italian government about buying bad loans under QE. Reuters cite Italian Treasury officials who say the ECB could buy them or would accept them as collateral for cash.

Italian banks have some €200bn of bad loans and it's been weighing around their necks for some time. This could go a long way to shifting a lot of it to open the door to new loans. As the debt may not fall into the rating category to make them eligible for ECB purchasing, the banks would need to purchase a guarantee from the government which would then give them the approved rating.

Reuters state that an ECB source said last Nov that in an extreme cases they could buy bad debt if the Eurozone economy was in a really bad way. The ECB declined to comment on this story.

The story seems to have flown in under the radar today but no doubt it is also a big reason why stocks are up in Europe, particularly in Italy where the MIB is up around 3%. It's also a reminder that if the ECB act in March, we could get something that's not just the conventional move on rates but also widening the QE net once again into areas like these.

Buying or taking on bad bank debts isn't going to be an easy sell for Draghi to a lot of the governing council though.

Reuters has the full story here