Italy is to pay up to 17 billion euros (US$19 billion) to break up two insolvent Venetian banks, which have posed a threat to the nation’s banking system, the Italian government said on Sunday.
Both face bankruptcy and European authorities had urged Italy to devise a rescue framework, selling off the good assets of the stricken Banca Popolare di Vicenza and Veneto Banca and transferring their toxic assets to a “bad bank,” essentially financed by Rome.
The move comes less than a month after the EU anti-trust authority approved Italy’s massive rescue of the nation’s troubled third-largest bank, Monte dei Paschi di Siena (BMPS), which has been in deep trouble since the worst of the eurozone debt crisis.
The Italian government is to stage the rescue with support from the nation’s biggest retail bank, Intesa Sanpaolo, which is to take up the good assets to protect the banks’ customers and minimize layoffs.
The European Commission in a statement said it “has approved, under EU rules, Italian measures to facilitate the liquidation of BPVI and Veneto Banca under national insolvency law.”
EU Commissioner for Competition Margrethe Vestager said that Italy considers state aid necessary “to avoid an economic disturbance in the Veneto region.”
“Italy will support the sale and integration of some activities and the transfer of employees to Intesa Sanpaolo,” she added.
Italian Minister of Economy and Finances Pier Carlo Padoan said 4.785 trillion euros would be set aside immediately to “maintain capitalization” of Intesa, which has made that a condition of any cooperation.
Intesa has put one symbolic euro on the table and attached a further string to the deal by insisting its share dividend policy remain unaffected.
“The total resources mobilized could reach a maximum of 17 billion euros — but the immediate cost to the state is a little more than 5 billion,” Padoan said.
“This decree allows the stabilization of the Venetian economy and safeguarding of the economic activity of the Venetian banks,” he added.
Italian Prime Minister Paolo Gentiloni portrayed the move as necessary to shore up the situation of account holders and ordinary savers, as well as of bank workers, to bolster “the good health of our banking system.”
The 19-member eurozone has expressed concern over the perilous state of some Italian banks as Rome tries to address piles of risky loans sitting on some of their books.
Rome would “adopt necessary measures to ensure banking activity is fully operational, with protection for all current account holders, deposits and senior shares,” the Italian Ministry of Economy and Finances said in a statement released on Friday night.
Media reports said that the bill from the “bad bank” to the Italian taxpayer would be about 10 billion euros.
There is also the issue of about 3,500 to 4,000 bank employees set to lose their jobs, as well as associated early retirement costs, La Repubblica reported on Saturday.
However, Intesa chief executive officer Carlo Messina late on Sunday said that there would be no redundancies.
“Our intervention will make it possible to secure more than 50 billion euros of savings entrusted to the two banks and to protect 2 million customers, including 200,000 companies,” he added.
Earlier this month, the EU anti-trust authority approved the rescue of BMPS, Italy’s oldest bank founded in Siena in 1472.
Rome is set to take a majority stake on a provisional basis to prevent bankruptcy and inject capital in line with EU rules, while limiting the burden for Italian taxpayers after the lender failed to raise funds on the market last year.
In exchange, Rome must accept a drastic EU-approved restructuring plan for BMPS expected to involve mass layoffs.
The European Central Bank in December last year said that BMPS was short a staggering 8.8 billion euros in capital.
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