Italy cabinet rescues two troubled banks
The state intervention could cost up to €17bn, EC backs the solution
1 July, 2017
Italian government gathered in an ad hoc meeting last Sunday, after the ECB said on 23 June that two Italian banks, which have struggled with high levels of outstanding loans, didn't have enough cash to survive. The cabinet of PM Paolo Gentiloni decided to pay €5.2bn to the nation's biggest retail bank Intesa Sanpaolo to take over the remains of Banca Popolare di Vicenza and Veneto Banca. The two banks are based in the northeast Veneto region, one of Italy's most economically productive. Economy Minister Pier Carlo Padoan told reporters that the overall price tag for the rescue operation would eventually be nearly €17bn because it would include Italian government "guarantees" for €12bn.
Premier Paolo Gentiloni defended the government's intervention as "not just legitimate, but also dutiful". He said the move was "certainly not for those responsible for the collapse, but for others - two million clients, the small and medium-sized enterprises, the regional economy".
Minister Padoan also defended the government actions as "burden-sharing, not a bail-in", saying "all this is in full respect of EU rules." "The government has utilised European rules in the best possible way," Padoan noted.
The European Commission said it had approved Italian measures to facilitate the liquidation of two lenders. "Italy considers that State aid is necessary to avoid an economic disturbance in the Veneto region as a result of the liquidation of BPVI and Veneto Banca, who are exiting the market after a long period of serious financial difficulties," Competition Commissioner Margrethe Vestager said, cited by ANSA. "The Commission decision allows Italy to take measures to facilitate the liquidation of the two banks: Italy will support the sale and integration of some activities and the transfer of employees to Intesa Sanpaolo. Shareholders and junior creditors have fully contributed, reducing the costs to the Italian State, whilst depositors remain fully protected. "
The Bank of Italy announced on Monday that Intesa Sanpaolo had taken over the 'good' assets of two insolvent lenders, Veneto Banca and Banca Popolare di Vicenza, for a symbolic price of one euro. Reuters reported that the solution contrasts starkly with Santander's recent overnight rescue of a struggling lender in Spain, where it too paid just 1 euro but took on the smaller bank's troubled loans and will raise billions to clean it up.
Intesa CEO Carlo Messina insisted that his bank's capital ratios and dividend policy would not be affected by the transaction. "Without Intesa Sanpaolo's offer, the only significant one submitted at the auction held by the government, the crisis of the two banks would have had a serious impact on the whole Italian banking system," Messina said. He assured that the deal will safeguard jobs.
The 19-member Eurozone has expressed concern at the perilous state of some Italian banks. At the end of last year, Monte dei Paschi di Siena, the world's oldest operating bank and the country's fourth-biggest bank is being bailed out by the state to cover a capital shortfall of €8.8bn. Four other smaller banks were wound down in 2015. Hemorrhaging money and crippled by bad loans, Banca Popolare di Vicenza and Veneto Banca had already burned through €3.5bn they received from a government-backed fund last year, observers recall.