Pimco - Viewpoint: Losses on Italian Non-Performing Loans: Severity and Solutions

Key Points
- At current levels, we believe the Italian NPL problem could be managed over time. However, with market uncertainty spiking post-Brexit, policymakers now feel pressured to pursue a quicker resolution.

- Under the current framework of the European Union Bank Recovery and Resolution Directive (BBRD), a "bail-in" would impose costs on investors, including the Italian taxpayers who represent a significant portion of them. An alternative option is the Italian government buying the NPLs, which could be funded at the government borrowing rate, and which could potentially be profitable for investors in the long-run.

- Given the fluidity of the situation, we ultimately expect some combination of the various resolution options to be employed, consistent with the BBRD framework.