Italy pumps €5bn of taxpayers money into two failing lenders
Intesa set to partially acquire Veneto lenders to avoid a bank run
Italy has moved to shore up confidence in its fragile banking system after agreeing to pump €5bn of taxpayers’ money into two failed mid-sized banks while handing their good assets to Intesa Sanpaolo, the country’s strongest lender.
Veneto Banca and Banca Popolare di Vicenza, based in the country’s prosperous industrial north-eastern Veneto region, will be wound down by Italian authorities after the European Central Bank said they were failing.
Pier Carlo Padoan, Italy’s economy minister, said on Sunday that the state would offer additional guarantees of up to €12bn — meaning a possible total of €17bn — to cover losses from the two banks’ bad loans. He said the initial €5.2bn included €4.8bn for Intesa to maintain its capital ratios following the acquisition of the Veneto banks, as well as a further €400m in guarantees against the risk that some of the credits acquired by Intesa turn sour.
Italy’s financial system has already put €3.5bn into the Veneto banks in the past year via the government-sponsored backstop fund Atlante.
Paolo Gentiloni, Italy’s prime minister, said the intervention was “important, urgent and necessary” to prevent a “disorderly failure” of the two banks.
The move by Italy’s government, which spent the weekend frantically drawing up the complicated decree, will in effect mean that the Veneto banks’ branches and employees will be part of Intesa Sanpaolo by Monday morning, a move considered crucial to avoid a deposit run, say people briefed on the discussions. The decree still needs to be voted into law by parliament within 60 days.
The drawn-out handling of the Veneto crisis has wider implications for Europe’s banking union, which aims to integrate oversight of eurozone lenders partly based on the assumption that private creditors would cover bank failure costs, rather than taxpayers.
The Italian state intervention to protect senior bondholders and big depositors runs counter to that principle but has been allowed because the banks’ liquidation means there are no competition issues.
Germany has long been concerned at Italy’s unwillingness to address banking problems and apply bail-in rules, as well as its attempts to sidestep curbs on state aid.
The Italian move comes just weeks after Spain’s Banco Popular avoided being wound down after a rescue from larger rival Santander.
Italy has already closed four small lenders and is undertaking a precautionary recapitalisation of Monte dei Paschi di Siena, Italy’s fourth-largest bank by assets, since the ECB took over banking supervision.
Carlo Messina, Intesa’s chief executive, said the deal was the only “significant offer” the government received. He added that without it, the crisis of the two banks would have had a grave impact on the entire Italian financial system with dramatic consequences for the Italian economy.
Intesa Sanpaolo, Italy’s best-capitalised large bank, said last week it was open to purchasing the rump of the good assets for a token price on condition that Italy’s government passed a decree agreeing to shoulder the cost of liquidating the lenders’ bad loans, paying for at least 4,000 lay-offs and incurring any legal risks.
The future of the Veneto banks has hung in the balance over the past two years since ECB regulators uncovered a capital hole caused by a surge in bad loans, which compounded a financial mis-selling scandal.
The length of time it has taken for regulators to come to any decision on the banks, which passed European bank health checks in 2014, has also raised serious questions about their supervision. Deposit flight at the banks has accelerated as regulators debated how to proceed, according to people informed on the matter.
Another midsized regional lender, Genoa’s Carige, is considered at risk of being wound down if it fails to shore up its balance sheet, say people close to talks with authorities.