Italy makes 5.2B euros in resources to keep 2 banks afloat

Xavier Trudeau
Juin 26, 2017

Padoan told reporters that the overall price tag for the rescue operation would eventually be almost 17 billion euros ($20 billion) because it would include Italian government "guarantees" for 12 billion (some $13.5 billion).

Hemorrhaging money and crippled by bad loans, Banca Popolare di Vicenza and Veneto Banca had already burned through €3.5 billion they received from a government-backed fund a year ago.

A Banca Popolare di Vicenza sign is seen in Rome, Italy, March 29, 2017.

At a press conference Sunday, Prime Minister Paolo Gentiloni said that the two banks will open for business regularly on Monday.

Italy began winding up two failed regional banks on Sunday in a deal that could cost Rome up to 17 billion euros and will leave the lenders' good assets in the hands of Intesa Sanpaolo.

The Italian government is stepping in to wind up two failing lenders and prevent a bank run, at a total cost of up to €17bn (£15bn).

Italy's banks hold bad loans that are worth around 12% of the country's GDP, while the state is one of the world's largest creditor nations, with more than €2.27 trillion in government debt. Italian media reported that Intesa Sanpaolo's taking over the troubled banks could lead to thousands of layoffs and the closing of hundreds of small branches.

The European Central Bank said in December that BMPS was short of a staggering 8.8 billion euros in capital.

A cabinet meeting scheduled yesterday was delayed as talks between Intesa and the government dragged on, according to newspapers.

The SRB said Friday night it wouldn't take action because neither of the banks would have "a significant adverse impact on financial stability".

Investors have long viewed the Italian banking sector as a major cause of fragility within the euro zone. That ended months of uncertainty, and failed attempts to raise fresh capital, and forced the Italian government to commence insolvency proceedings and wind them up.

By avoiding the SRB, Italian authorities could work under a softer set of rules dating from 2013 and only had to put forward a state-aid case to the commission.

Rome is set to take a majority stake on a provisional basis to prevent bankruptcy and inject capital in line with European Union rules, while limiting the burden for Italian taxpayers after the lender failed to raise funds on the market previous year. Under so-called precautionary recapitalization, Italy could have injected state money into the ailing lenders, but the commission didn't approve the plans.

Padoan said that on top of the 5.2 billion euros payment to Intesa, which includes 1.3 billion euros to cover job cuts, the state will offer guarantees to fund potential losses arising from due diligence of the two banks' soured and risky loans. In March, they requested government help to stay afloat.

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