PIMCO: How Italy could revive troubled banks

It is easy to get lost in the many headlines proclaiming impending doom for Italy's banking system (especially following the 'no' vote in the constitutional referendum), or in the complex details of state aid and debt burden sharing.

But in our view, the big picture is simple. Italian banks are burdened by a large stock of bad loans (so-called non-performing loans or NPLs), which they have valued at prices higher than market participants are willing to pay. Will Italy's referendum be the latest signpost for other developed nations? In our view, to unblock the situation, the banks need to mark down the value of the loans as well as raise equity to shore up their balance sheets. Cost to revive banking sector is manageable We estimate that around €30bn-40bn of equity injections are required to bolster Italian ba...