With the U.K. securitization market plodding along gently and things relatively quiet in most other European markets, much of the current excitement in European securitization is to be found in Italy.

A host of Italian banks are working on deals backed by non-performing loans and mortgages. Furthest advanced is a Lit2.5 trillion ($1.36 billion) deal being pre-marketed by Greenwich NatWest for mortgage and loan bank Italfondiario, but they are far from on their own.

The latest bank to acknowledge that it is looking to securitize dodgy assets is Sanpaulo IMI, which joins a queue that includes Banco di Sicilia (looking at a deal worth between Lit1.5 and 2 trillion, via parent firm Mediocredito), Monte dei Paschi di Siena, Banca Intessa and Fonspa.

The lead was set by three privately-placed deals backed by non-performing assets arranged by Morgan Stanley Dean Witter and the first NPL-backed deal placed publicly from Paribas, which launched a deal worth E1.4 billion for Banca di Roma in July.

However, bankers acknowledged that the sheer volume of NPL-backed issuance that is expected to reach the markets over the next couple of years may cause problems on its own, with securitization pros wondering how deep investor demand will prove.

"That is what bankers are asking themselves these days," said Andrea Perona, co-head of Italian securitization at Paribas. "European investor appetite is considerable but finite and this is why structuring and placement expertise is particularly important the less well-structured deals will face a significant risk of falling short of investor's expectations."

The impetus for these deals, besides the large amount of bad loans in the Italian banking system, is the country's new securitization law, which for a two-year period dating from the law's passage in April allows banks to account for losses resulting from selling bad loans over five years, rather than taking the hit in one go.

However, bankers are keen to stress that the Italian market is not going to be dominated by bad-loan deals to the exclusion of all else. Perona pointed out that Italian banks are likely to be just as keen on one of the traditional advantages of securitization the capital relief of taking assets of balance sheet as banks elsewhere in Europe and that is only going to be possible by packaging performing assets.

Sanpaulo IMI, for instance, is also looking at issuing a securitization backed by performing consumer loans for precisely that reason, according to the bank's investor relations manager, Tom Lucassen. Banca Nazionale del Lavoro is also hoping to securitize assets worth Lit3 trillion by the end of 2000, though whether those assets will be performing or non-performing or a mixture of both is not clear.

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