New Securitisation Techniques in Italy

Transcription

1 New Securitisation Techniques in Italy How the Italian securitisation framework is developing into one of the world s most innovative legal and regulatory environments Creating Liquidity - Trends in International Securitisation Villa Bologna, Attard, 30 September 2016 Avv. Paolo Calderaro Avv. Tommaso Canepa

2 INDEX PART I 1. Securitisation: an alchemy that really works 2. The Italian Securitisation Law a) At its onset i. Developments in the Italian securitisation market ii. iii. The derogatory nature of certain provisions Removing the obstacles that prevented securitisation transactions from being performed entirely in Italy b) The reasons for its success c) Amendments and their twofold purpose d) Typical structure of an Italian traditional securitisation transaction c) The SPV s bankruptcy remoteness d) The combined provisions of the Italian Securitisation law and Factoring Law e) Amendments aimed at broadening its original scope PART II 1. The fundamental mechanics of securitisations (irrespective of the structural nuances) 2. New securitisation techniques a) The securitisation of debt securities b) Loans made by the SPV c) Differences and similarities b/ween AIFs and SPVs d) NPLs and GACS 2

3 PART I 3

4 Securitisation: an alchemy that really works Main reasons to securitise A financial engineering technique that converts illiquid assets (a portfolio of claims) into debt-like securities (asset-backed notes) with a greater marketability CRR Definition (EU Regulation no. 575/2013) «A transaction or scheme, whereby the credit risk associated with an exposure or pool of exposures is tranched, having both of the following characteristics: a)payments in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures; b)the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme» «An alchemy that really works» The securitisation process: 1. Eases the creation of a secondary market for investors facilitates investment/disinvestment 2. Enables risk/return fragmentation appeals to a wider range of investors The main reasons to securitise It provides originators with an additional and cheaper source of funding (without resorting to new borrowings in case of derecognition of the securitised portfolio) It frees liquidity to finance more profitable investments It allows risk diversification and redistribution (that is transferred to the market in different classes designed to have different risks, maturities and interest rates) It improves balance sheet ratios, reducing capital requirements and regulatory costs 4

5 The Italian Securitisation Law: at its onset Law no. 130/99 (the Italian Securitisation Law ) introduced a specific legal framework for securitisation transactions into the Italian legal system The reasons behind the introduction of the Italian Securitisation Law In the absence of an ad hoc legal framework, securitisation transactions in Italy were very few, due to complexity and costs (approx. only 20 securitisations took place from 1990 to 1999) The constraints on the issue of bonds and on the limitations to liability provided for by the Italian civil code forced market operators to resort to crossborder securitisation schemes, throughtheuseof foreign SPVs (usually incorporated in Jersey or Cayman islands) Finance Committee Report (22 February 1999) Securitisation transactions were seen as: - an important new (and cheaper) source of funding for credit institutions - a useful tool for relieving the Italian banking system from the burden of non-performing loans 5

6 (cont d) Developments in the Italian securitisation market Four phases: 1) : from the first securitisation transaction in Italy to the enactment of the Italian Securitisation Law 2) : mainly securitisations of non-performing loans, a heavy burden on the shoulders of the Italian banking system ( art. 6 of the Italian Securitisation Law provided certain tax advantages no longer relevant) 3) : the real boost in the securitisation market (+ synthetic securitisations + public securitisations), which saw both banks, financial institutions and commercial entities playing the role of originators until the financial crisis 4) : the use of ABS as collateral in refinancing transactions with the ECB (within its monetary policy operations) and the recent revival of the non-performing loans market Of the approx. 213,7 bln issued in the European securitisation market in 2015, approx. 32,5 bln are related to securitisations whose collateral is originated in Italy. 6

7 (cont d) The derogatory nature of certain provisions 1. Enforceability of transfer: Against the assigned debtor/debtor s bankruptcy receiver = Art 1264 c.c. Notification of assignment to each assigned debtor (or acceptance thereof) Against the Originator/Originator s insolvency officer/subsequent assignees/third parties = Art 1265 c.c. Notification of assignment to each assigned debtor (or acceptance thereof) bearing date certain at law 2. Ancillary guarantees Must record the assignment of the mortgage securing the claim in the land register 1. Enforceability of transfer : Against the assigned debtor/debtor s bankruptcy receiver = Art. 58 TUB Publication of the notice of assignment in the Official Gazette and in the Companies Register no set-off Against the Originator/Originator s insolvency officer/subsequent assignees/third parties = Art. 4 Law 130/99 Publication of the notice of assignment in the Official Gazette or, for trade receivables, payment (also in part) of the purchase price bearing date certain at law 2. Ancillary guarantees All security interests and priority rights maintain ranking and validity without any formalities or annotations whatsoever (i.e. no expenses/taxes) Securitisation Law General Law 3. Claw-back: Assigned Debtor s insolvency Artt. 65 and 67 Bankruptcy Law: revocation/ claw-back of payments under the receivables Originator s insolvency Art. 67 Bankruptcy Law - 1 year/6 months suspect period for the deed of transfer of the receivables 3. Claw-back: Assigned Debtor s insolvency No revocation/claw-back of payments Originator s insolvency Reduced claw-back period to 6 and 3 months, respectively 7

8 (Cont d) Removing the obstacles that prevented securitisation transactions from being performed entirely in Italy Segregation by law of the Portfolio Art c.c. Tax regime -Favourable tax regime for the ABS -SPV s tax neutrality Prohibition of raising funds from the public for non-bank entities not applicable Limits to the issue of bonds not applicable Art 11 T.U.B. Artt et seq. c.c. 8

9 The Italian Securitisation Law The reasons for its success Over the last 20 years Relieved the Italian banking system from the burden of NPLs Untapped and cheaper source of funding for credit institutions, benefitting, at last, the real economy Collateral for ECB s refinancing operations Key factors Hands-on and minimalist approach Neutral as to the definition/purpose of securitisation Getting to the bottom of securitisation according to Law 130/99 The epiphenomenon of the tendency towards risk specialisation among creditors An instrument for credit risk transfer 9

10 The Italian Securitisation Law Amendments and their twofold purpose Given the success of the Italian Securitisation Law, the legislator intervened several times 1 to amend it in order to: Remove inefficiencies, mainly strengthenin g the segregation of assets Expand its original scope to new securitisation techniques 1 Law Decree no. 350/2001; Law Decree no. 351/2001; Law Decree no. 35/2005; Law no. 266/2005; Legislative Decree no. 141/2010; Legislative Decree no. 218/2010; Law Decree no. 145/2013; Law Decree no. 91/

11 Typical structure of an Italian traditional securitisation transaction pursuant to Law 130/1999 ACCOUNT BANK PAYING AGENT CALCULATION AGENT CORPORATE SERVICER Collections ASSIGNED DEBTORS ORIGINATOR AND SERVICER Receivables CREDIT ENHANCEMENT Collections Purchase Price SPECIAL PURPOSE VEHICLE REPRESENTATIVE OF THE NOTEHOLDERS Interest, Principal and Variable Return Subscription Price SWAP COUNTERPARTY SENIOR NOTES MEZZANINE NOTES JUNIOR NOTES INVESTORS 11

12 (Cont d) Typical structure of an Italian traditional securitisation transaction pursuant to Law 130/1999 Assignment The Originator assigns (pro soluto) the portfolio of claims to the SPV The claims comprised in the portfolio are identifiable as a pool pursuant to art. 58 of the Consolidated Banking Act Bankruptcy remoteness of the SPV From the date of publication of the notice of transfer in the official gazette/companies register: The assignment is enforceable against the assigned borrowers, any creditors of the originator and any other assignees thereof Any payments by way of principal, interest and/or other amounts received in respect of the assigned receivables are segregated from the rest of the SPV s assets in favour of the noteholders and of the other issuer creditors 12

13 Issue (Cont d) Typical structure of an Italian traditional securitisation transaction pursuant to Law 130/1999 The SPV issues the Notes in order to raise the funds necessary to pay the purchase price of the portfolio The Notes are: Direct, secured and limited recourse obligations solely of the SPV The performance of the Notes is directly and strictly based upon the collections and other amounts received by the SPV on the receivables The SPV fulfils its payment obligations according to the priority of payments set out in the transaction documents 13

14 The SPV s bankruptcy remoteness The Segregation of Assets The portfolio of assets is segregated by operation of law from the other assets of the SPV, in favour of the noteholders and of the other issuer creditors (artt. 1 and 4 of the Italian Securitisation Law) Highly specialised risk\return on the investment ensures a more efficient allocation of risk Art of the Italian civil code = creditors can count on the whole of the debtor s assets towards satisfaction of their rights Art of the Italian civil code = creditors rank pari passu among themselves Change of perspective: the relationship assets-entity blends into assets-activity Asset segregation goes hand in hand with the earmarking of the separated assets in towards a specific purpose Segregation as a means to govern the balance of power among creditors: it alters the level playing field Any exception to the general rule set out in art c.c. must be expressly provided for by law and enforceable erga omnes 14

15 (cont d) The segregation of assets The Italian Securitisation Law ensures the SPV s bankruptcy remoteness against the credit risk of: 1. the assigned debtors Law Decree no. 145/2013: putting an end to previous interpretations to the contrary with reference to consumer loans, has clarified (art. 4, par. 2) that none of the assigned debtors may offset any claim held by it towards the originator against its payment obligations vis-à-vis the SPV, if such claim has arisen after the date on which the transfer of the portfolio has become enforceable against it; carved-out the payments made (in advance) by the assigned debtors from the application of the provisions of the Bankruptcy Law regarding revocation (alongside claw-back) by the bankruptcy receiver; 2. the originator (through the true sale of the assigned portfolio); Law Decree no. 91/2014 has clarified (art.3, par.2) that the segregated assets include: the claims vis-à-vis the assigned debtors; 3. the SPV as a whole; and 4. any third party with whom the SPV may engage with. any other claim of the SPV arisen in connection with the transaction; the cash flows arising therefrom; and any eligible investments purchased therewith by the SPV in the context of the transactions. 15

16 Bankruptcy remoteness against credit institutions and servicers Law Decree no. 91/2014 recently amended article 3, par. 2-bis, of the Italian Securitisation Law, as to ensure that: Segregation of assets: no creditors other than the noteholders may undertake any action to attach the accounts opened in the name of the SPV with the servicer or the relevant other credit institutions, where the collections arising from the assigned receivables, as well as any other amount paid or due to the SPV under the transactions ancillary to the securitisation, are deposited. Protected parties: such amounts may be applied by the SPV exclusively in satisfaction of its payment obligations towards the noteholders and in respect of any costs incurred by it in connection with the securitisation. Exceptions to the Bankruptcy Law: in the event of insolvency of the relevant depositary bank, the relevant amounts, as well as amounts deposited on the relevant accounts pending the relevant proceedings, shall not be subject to the suspension of payments and will have to be immediately and entirely transferred to the SPV without the need to file the relevant petition and outside any distribution plan. 16

17 General Remarks (cont d) Bankruptcy remoteness against credit institutions and servicers The provision is aimed at strengthening the segregation of assets, by safeguarding the flow of payments envisaged in the context of the transaction (the cash flows arising from the receivables are to be collected by the servicer and deposited by the latter in the accounts opened in the name of the SPV) and ensuring that such amounts are made immediately available in case of insolvency of the depositary bank and / or servicer this should enable Italian banks to regain their role as depositaries (alongside the related right to dispose of the deposited amounts), regardless of their rating. The provision no longer speaks of segregated accounts since the amounts are now ring-fenced by operation of law in favour of the protected parties the underlying purpose was that of increasing liquidity in the Italian banking system. The ring-fencing does not encompass the payments that the servicer/depositary bank might have already received on behalf of the SPV but not yet credited to the account opened in the name of the SPV. 17

18 Bankruptcy remoteness against non-bank servicers and sub-servicers Commingling risk Pursuant to the provisions of article 3, paragraph 2-ter, of the Italian Securitisation Law (as recently amended by law decree no. 91/ 2014): Protected parties: with regards to the accounts opened by the non-bank entities carrying out the collection and recovery activities in relation to the securitised receivables, including upon delegation (this is the case of the so-called double-decker structures, which involve a master servicer and a sub-servicer), being the accounts for the deposit of the amounts collected on behalf of the SPV and paid by the assigned debtors. Segregation of assets: no actions by the creditors of such entities are permitted except in relation to amounts in excess of the collections due to the SPV. Exceptions to the Bankruptcy Law: should any insolvency proceeding be commenced against such entities, the amounts deposited in such accounts (and those credited during the course of the relevant proceeding) shall be immediately and fully transferred to the SPV in an amount equal to the sums which have been collected and are due to the SPV in respect of the assigned receivables, without the need to file any petition and outside of the distribution plans.

19 (cont d) Bankruptcy remoteness against non-bank servicers and sub-servicers General Remarks The provision is aimed at reducing the risk of commingling between the amounts collected on behalf of the SPV in respect of the assigned receivables and the other amounts credited to the same account. The provision is deemed to assume: that the entity in charge of the collection of the receivables and the depositary bank with whom the account is opened are two different persons (typical of securitisation transactions having at object trade receivables, whereby the originator is not a bank, but a commercial entity); and the mixed-use of the accounts (i.e. the amounts to be credited therewith do not necessarily all pertain to the assigned receivables/spv). The ring-fencing does not encompass the payments that the servicer might have already received on behalf of the SPV but not yet credited to the account.

20 The combined provisions of the Italian Securitisation Law and the Factoring Law Law Decree no. 145/2013 amended art. 4 of the Italian Securitisation Law in order to allow, with reference to claims arising from agreements entered into in the context of business pursuant to the Italian Factoring Law (i.e., first of all, trade receivables), that the transfer is carried out regardless of them being identifiable as a pool. This allows the transfer of credit claims (albeit only those under the Factoring Law) having different characteristics from each other With regards to the enforceability of the assignment, there is no need to notify the assigned borrowers, given that: a simplified notice of transfer to be published in the official gazette (identifying the assignor, the assignee and the date of transfer); OR the payment (also in part) of the purchase price bearing date certain at law (electronic track of the bank payment), suffice to that effect, according to the new provisions of law. 20

21 (cont d) The combined provisions of the Italian Securitisation Law and the Factoring Law General Remarks The amendment undoubtedly simplifies revolving securitisations of trade receivables The simplifications brought about to the publicity requirements seem to preclude the possibility for the assigned debtor of recognising himself as such (albeit only potentially) it is difficult to understand why the nature of the securitised claim should justify a depletion in the content of the notice of transfer, in particular as regards the information necessary to identify the object under assignment (i.e. criteria). 21

22 The Italian Securitisation Law Amendments aimed at broadening its original scope Alongside i. traditional securitisations; ii. iii. securitisations realised through sub-participation schemes, whereby the SPV grants the borrower/originator a limited recourse loan for the purpose of acquiring the benefit to the cash flows relating to the receivables, although the legal entitlement thereto is retained by the borrower/originator; and securitisations carried-out by (closed-ended) alternative investment funds, the scope of the Italian Securitisation Law has been broadened significantly: 1. The 2005 reform (Law Decree no. 35 of 14 March 2005) introduced the provisions governing the issue of covered bonds (art. 7 bis): mobilising credit claims that serve as collateral in favour of investors, in addition to the issuer s repayment obligations.

23 (cont d) Amendments aimed at broadening its original scope 2. In 2013 (Law Decree no. 145 of 23 December 2013), alongside other measures aimed at improving the access to finance of SMEs, the securitisation law was amended to include securitisations of bonds, similar debt-like instruments and commercial paper (art. 1, par. 1-bis), with the necessary adjustments to the provisions regarding the segregation of assets; the issue of collateralised bank obligations, a particular type of covered bonds, having characteristics similar to the latter, but that of being collateralised by different and riskier types of credit claims (arising from leasing and factoring agreements; bonds, minibonds, commercial paper and so on); 3. In 2014 (Law Decree no. 91 of 24 June 2014), the reform introduced: the possibility for SPVs, under certain conditions, to grant loans in favour of entities other than natural persons and micro-enterprises (art. 1, par. 1-ter) and the securitisation of the same (art. 7, par. 2-quarter). 23

24 PART II 24

25 The fundamental mechanics of securitisation irrespective of the structural nuances Notwithstanding the different amendments to the Securitisation Law, which made it a breeding ground for the most innovative transactions, the core of all such transactions remains unvaried: Asset Segregation The collections arising from the receivables must be entirely and uniquely used towards payment of the noteholders and of the other creditors of the issuer in respect of the tranaction s costs Originator/Borrower True sale securitisations: Art. 1, par. 1, lett. a): SPV Art. 7, par. 1, lett. b): AIF Securitisations involving the granting of loans by the SPV to originators: art. 7, par. 1, lett. a) Securitisations involving the: art. 1, par. 1-bis: underwriting or purchase by the SPV of bonds or similar instruments or art. 1, par. 1-ter: granting of loans to debtors Institutional Investors Retail Investors provide the necessary funds Noteholders The Italian Securitisation Law may be seen as the new company law : it is the cauldron for different forms of asset segregation 25

26 New securitisation techniques The securitisation of debt securities (art. 1, par. 1-bis) Law Decree no.145/2013 expressly allowed the securitisation of debt securities whereby the SPV may purchase or subscribe for bonds, other debt-like instruments or commercial paper (not hybrid bonds or equity-like instruments). This technique enjoys the benefit of the exemption from the provisions regarding the claw-back of payments made by the assigned debtors. General Remarks The new technique is aimed at bringing together several bonds issues, exploiting securitisation as a means for collective refinancing. This brings about a structural novelty as compared to the traditional securitisation technique, in that the role of the originator becomes no longer an essential feature: through the direct subscription of the securities by the SPV, the loans are no longer "originated" by a third party to be then transferred to the SPV and securitised, but the origination of the loan is directly carried out by the SPV this is a common feature b/ween these transactions and those whereby loans are made directly by the SPV (see the following slide). 26

27 New securitisation techniques Loans made by the SPV (art. 1, par. 1-ter) Law Decree no. 91/2014 introduced certain provisions governing the granting of loans on the part of SPVs incorporated pursuant to the Securitisation Law Requirements The borrowers must be entities other than natural persons and micro-enterprises (as defined by the EU) a measure aimed at encouraging the access to credit for businesses A bank or a financial intermediary must act as servicer this ensures some space to supervision, with a view to reducing systemic risk A bank or a financial intermediary acting as sponsor (that might be also acting as servicer) is in charge of the selection of the borrowers to whom the SPV may grant the loans, so as to ensure that the funding by the relevant noteholders of such new loans is made after proper evaluation of the creditworthiness of the borrowers, in line with best banking practice this implies splitting the activity of disbursing the loan (on the part of the SPV) from the activity of selecting the beneficiary thereof (proper banking activity on the part of banks or financial intermediaries) The sponsor shall retain a significant economic interest in any such loans this is purported to create an alignment of interests b/ween the sponsor and the noteholders Only qualified investors may invest in the notes issued by the SPV 27

28 (cont d) Loans made by the SPV General Remarks o This new technique differs completely from a traditional securitisation since it disregards one of its cornerstones: the pre-existence of the claim in comparison to the transaction the claims being securitised are not those held by the company, but those granted to the latter in the context of the transaction As for any traditional securitisation, the SPV acquires the ownership of the claims arising from the loans granted by it, which will have to be managed on behalf of the noteholders The cash flows arising from the claims shall be segregated by operation of law to the benefit of the noteholders and the other creditors of the SPV o If prior to the 2014 amendments to the Italian Securitisation Law securitisation companies could only purchase receivables from third parties (and, following Law Decree no. 145/2013, purchase or underwrite certain types of debt-like securities), today, SPVs are able to perform bank-like activities (credit intermediation) in favour of the investors in the notes issued in the context of the securitisation, in complete exemption from the prohibition for entities other than banks from raising money from the public and granting credit therewith. 28

29 (cont d) Loans made by the SPV Cont d The sponsor must retain a significant economic interest even in those securitisations that do not qualify as such according to the CRR (for the absence of tranching) this is aimed at encouraging healthy and sound lending practices avoiding any regulatory arbitrage associated with the shadow banking phenomenon. In light of the fact that such provisions do not specifically limit the ability of the relevant securitisation company to grant new loans within the framework of a securitisation of claims/receivables deriving solely from the granting of such new loans, it seems possible for a securitisation company to grant new loans also in the context of a securitisation of claims purchased by it from third parties. However: The Italian Securitisation Law should be amended as to ensure that payments made by the assigned debtors are exempt from claw-back/revocation Doubts as to the types of investors who could invest in the transaction 29

30 Differences and similarities b/ween AIFs and SPVs In the context of the Italian Securitisation Law Is the assignment of credit claims to AIFs in the context of the Italian Securitisation Law a species of the securitisation genus? It is an instrument for the conversion of illiquid assets (credit claims) into transferable securities (units) The provisions of the Italian Securitisation Law are applicable to the extent compatible (mutatis mutandis) Asset segregation is ensured also for AIFs pursuant to art. 36, par. 4, of the TUF The terms and conditions of the AIF contain similar information to that required by the Securitisation Law for the prospectus *** The difference lies in the static or dynamic nature of the management and administration service in relation to the portfolio on the part of the SPV and the AIF, respectively in the first case, the risk taken by the investors is limited to the credit risk associated with the portfolio of claims; on the other hand, investors in fund units must also take into account the risk associated with the dynamic administration of the portfolio. No power to dispose freely of the assets Conservative approach vs. effective management of the portfolio with the aim of increasing the return on the investment (investment/disinvestment in the assets (the claims)) The remuneration on the units depends on the results of the management and cannot be determined a priori 30

31 Non-performing loans securitisations and GACS In the case of non-performing loan securitisations, the receivables which are securitised are the awaited stream of cash flows that result from the NPLs. o o o The major advantage of securitisation is that it can repackage cash flows, created by a diversified portfolio of claims, into marketable securities aiming at a wider investor base with varied risk characteristics. Each tranche has different levels of loss protection and, therefore, could appeal to investors ready to take on a wide range of risks. Due to the large number of the European Union s NPLs and the sluggish pace of recovery until now, securitisation appears to be an excellent solution because it permits the collection of a significant number of assets. As a result, there is an instant cash recovery for the seller [ ] it has to be mentioned that the most notable challenge for securitization is the deficiency of the respective legislation. (A. Dimitrios, Management and Resolution methods of Non-performing loans, Department of Accounting and Finance, Athens University of Economics and Business) *** Law Decree no. 18/2016 introduced a state guarantee on the senior tranche of securitised portfolios of NPLs (the GACS ), with a view to supporting the disposal of the mounting stock of NPLs, which has been accumulating in the balance sheets of Italian financial institutions.

32 (Cont d) Law Decree no. 18 of 14 February 2016 The GACS is a first demand, unconditional and irrevocable guarantee issued by the Italian Government to secure the payment obligations vis-à-vis the holders of the most senior tranche of notes issued by an SPV to which Italian financial institutions may assign portfolios of NPLs, including claims arising from leasing loans, pursuant to the Italian Securitisation Law. Requirements To be eligible for GACS, the senior tranche is required to be rated, per se (i.e. without considering the effects of the GACS itself), investment grade or above and bear floating rate interest; to facilitate access to investment grade credit rating, senior notes may benefit from liquidity support on timely payment of interest, and interest rate hedging from eligible counterparties. GACS is available only to Italian banks and financial intermediaries, including leasing companies. GACS requires the majority of the junior notes to be placed with third parties (i.e. neither the selling entity nor any of its affiliates) and, in any event, that de-recognition of the underlying non-performing loans is achieved both at individual and group level. Capital structure may contemplate a mezzanine tranche; interest on mezzanine tranche may rank senior to principal of senior notes. Servicers shall not belong to the selling entity s group. 32

33 (Cont d) Law Decree no. 18 of 14 February 2016 Cont d Neither the state nor any Italian public authority (or companies directly or indirectly controlled by any public authority) may invest in junior or mezzanine notes issued in securitisation transactions in the context of which GACS has been requested. To ensure its compliance with the EU rules on state aid, the GACS scheme requires payment of an arm s length guarantee fee with a step-up mechanism in the third and fifth year after issuance, plus a penalty. However, no step-up or penalty would apply after the seventh year of issuance. The GACS scheme will be available for a period of eighteen months, unless extended by the Ministry of Finance for an additional eighteen months, subject to prior approval by the European Commission. General Remarks The GACS scheme is intended to support a reduction of the existing bid-ask gap in the market for portfolios of Italian NPLs. An enhanced strategy intended to increase the saving (and, therefore, its ability to positively address the bid-ask gap issue) may seek for inclusion of the guaranteed senior notes within the type of collateral eligible by the European Central Bank in return for refinancing transactions within its monetary policy operations (as currently in place or as such operations could be widened in the future) on the basis that such collateral could be deemed substantially equivalent to a central government debt instrument. 33

34 (Cont d) Law Decree no. 18 of 14 February 2016 Monthly report of the Italian Banking Association January 2016 At the end of 2015, the GBV of the non-performing loans recorded in the consolidated accounts of Italian credit institutions amounted to approx. 200 billion euros Transactions involving GACS Banca Popolare di Bari was the first bank to request the support of GACS in connection with a programme for the securitisation of part of its stock of nonperforming loans having a gross value of over Euro 800 million. Banca Monte dei Paschi di Siena is envisaged to execute, on or prior to its capital increase transaction (expected to occur in November 2016), a full disposal (with de-recognition) via securitisation of ca. GBV Euro 27bn. non-performing loan portfolio recorded in its consolidated accounts, whereby the senior notes will have the benefit of the GACS. 34

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