Italy’s government has received the green light from the European Commission (EC) to mount a state-backed bailout of two insolvent Venetian banks.
It announced that it will pay up to €17bn (US$19bn) to break up the insolvent Banca Popolare di Vicenza (BPVI) and Veneto Banca by selling off their good assets and transferring their toxic assets to a “bad bank” essentially financed by Rome.
Italy’s biggest retail bank, Intesa Sanpaolo, will be the recipient of the good assets to protect the two banks’ customers and to minimise staff redundancies.
The immediate cost of the rescue is €5.2bn, but economic minister Pier Carlo Padoan said that the government will also offer guarantees to Intesa of up to €12bn in addition for potential losses relating to bad and risky loans. Italy’s prime minister Paolo Gentiloni said the rescue was needed to protect savers and ensure “the good health of our banking system”.
The European Union (EU) has tightened up regulations in recent years to require that the bondholders of stricken banks bear the brunt of losses before any state-backed rescue is possible. However, in a statement the EC confirmed that it “has approved, under EU rules, Italian measures to facilitate the liquidation of BPVI and Veneto Banca under national insolvency law”.
EU competition commissioner Margrethe Vestager said that Italy considers state aid necessary “to avoid an economic disturbance in the Veneto region” and that “Italy will support the sale and integration of some activities and the transfer of employees to Intesa Sanpaolo”.
“These measures will also remove €18bn in non-performing loans from the Italian banking sector and contribute to its consolidation,” she added.
The EU anti-trust authority had already approved Italy’s massive rescue of another stricken bank earlier this month. Founded in Siena in 1472, Monte dei Paschi di Siena (BMPS) is Italy’s third-largest and oldest bank, whose bad loans have ballooned in recent years.
Rome secured authorisation to take a majority stake in BMPS on a provisional basis to prevent bankruptcy and inject capital in line with EU rules, while limiting the burden for Italian taxpayers.
In exchange, the government must accept a drastic EU-approved restructuring plan for BMPS, which is likely to involve substantial job losses. The bank fared particularly badly in last year’s Europe-wide stress tests. In December, the European Central Bank (ECB) calculated that BMPS’ capital shortfall amounted to €8.8bn and the bank requested state aid after investors snubbed a cash call.
Reports suggest that the Italian banking system is burdened with no less than €350bn in bad loans, or around a third of the eurozone’s total bad debt. In addition to the rescue of BMPS, four small lenders have been closed.
The Italian bank bailouts follows the recent €7bn rescue by Spain’s Santander of stricken rival Banco Popular.
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