BPER’s New Plan Overshadowed by Italy’s Debt Risk

After the shaky results of last month’s budget, BPER has unveiled a new plan to boost its capital returns and close more than half of its branches. However, the new plan has been overshadowed by Italy’s debt risk – and that is a major concern for investors. The new plan will result in value savings of 155 million euros in the next three years, and BPER plans to double its digital investment to more than half a billion euros by 2025.

As part of the plan, BPER plans to offload around 2.5 billion euros of unhealthy debts. This will reduce bad loans to 3.6% of its total loan portfolio by 2025, down from 4.9% in the first quarter. As a result, the company is aiming to increase its fee-earning actions to generate over 800 million euros by 2022.

The ECB’s action in Italy will remain opaque under convoluted legal and technical rules. However, if the Italian situation worsens, the politicians will have to come up with solutions to address the debt crisis. According to David Marsh, Chairman of the OMFIF, the ECB’s holdings of Italian sovereign bonds will rise to EUR140 billion, or 40% of Italy’s GDP, in the next twelve months.

Italy’s bond market will suffer a setback, though. The spread between Italian and German government bonds will rise to more than 2 percentage points – the largest since the Covid-19 outbreak in March 2020. The spread between Italian and German government bonds will be as high as 3 percentage points by June 10 2022 – the next time the eurozone is threatened.

The new plan from the BPER is not without its flaws, however. First, it aims to reduce the debt burden of Italy, and secondly, it includes additional powers to help other non-bailed-out countries. It also aims to prevent contagion. Italy’s debt is 119 percent of its GDP and one of the world’s largest. While the new plan is an attempt to alleviate the risks, some skeptics believe that it will cause the next European crisis.

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