In North America we often hear the Italian economy is not doing well and a new government has been elected. The government is more anti establishment and one never knows what to expect from it. In a column by Reuters, PwC consulting believes Italian banks are set to shred E$70 billion or $107 billion in bad loans in 2018. There is in theory a strong market is to found for these bad loans. In order for the banks to be cleaned up and possibly merged to strengthen them, the bad loans have to be taken off their books. Vito Ruscigno of PwC said the volume of bad loan sales will remain healthy in years ahead… the banks have a pipeline for disposal. While banks have made great progress there is another E$ 94 billion in loans unlikely to be repaid in full. Many of these loans will go to default.

The reason why the banks wrote down loans was a favorable phase-in regime for a new accounting rule. Since the new rule, the government has changed and investors are not positive what the new government will or will not do. Investors in the bad debt expect to receive even bigger discounts for the buyers.

PwC calculates Italy’s gross soured loans totaled E$ 264 billion following disposals of E$ 64 billion which was twice the amount sold in the previous year.

Linking to dividend paying stocks, it seems whatever was loaned out in Italy during the boom is not being repaid unless there is a government guarantee it will be paid. The country’s credit is still not good. As investors you may love Italy but unless there are very, very good reasons to be there perhaps it is best to find an alternative.

There are more questions than answers, till the next time – to raising questions.