While the overall amount of non-performing loans (NPLs) held by Italian banks has an estimated value of US$350bn, the shipping sector accounts for almost US$10bn. The statistic emerged during the finance session of the Shipping and the Law conference held in Naples where Michele Autuori, a lawyer from Watson Farley & Williams, discussed a presentation dedicated to the NPLs market.

"The shipping industry is a major borrower and has been one of the worst hit by the economic downturn and the vast majority of the Italian shipping firms, with the exception of few shipowners, are under restructuring," he said. Italy's top two banks, Unicredit and Intesa Sanpaolo, hold roughly half of the overall financial exposure of the local shipowners (US$7bn out of US$13bn) and they have been so far reluctant to sell their loan books at a highly discounted rate.

According to Autuori, hedge funds typically apply a 40% discount on average to the book value of Italian shipping loans to reflect higher default risks and greater potential for trouble when it comes to recouping their money in court. "Nevertheless investment funds seemed to be interested in buying Italian non performing loans and have set their sights on an estimated $13bn of shipping portfolios held by Italian banks," commented the Italian lawyer.

As of today several NPL transactions took place in the Italian shipping market with Pillarstone Italy at the forefront with US$281m invested, followed by Goldman Sachs with US$206m, Deutsche Bank US$193m and Bank of America Merrill Lynch on US$3.8m.

Autuori however also stressed the issue that today there is a price gap of as much as 20% of loan value between NPL sellers and buyers due to many factors such as the inefficiency of the Italian judicial system and inability to carry out quick private sales.