Saturday, 20 January, 2018

Italian PM 'guarantees' savers' accounts in 2 troubled banks

Nellie Chapman | 27 June, 2017, 08:09

As for Italian banks, Rome has released €5.2 billion in emergency funding to wind up the failing Banca Popolare di Vicenza and Veneto Banca, with the country's finance minister saying the total bailout costs might reach 17 billion euros. Both have been flailing for several years despite efforts to shore up their capital and restore their health.

For a nominal sum of €1, national banking group Intesa Sanpaolo will take on the parts of Banca Popolare di Vicenza and Veneto Banca which are able to be saved.

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.

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

EPP's German MEP Markus Ferber, was not positive over this choice either: "The promise that the taxpayer will not stand in to rescue failing banks any more is broken for good" he said.

"The use of state aid should be avoided as much as possible in bankruptcy cases", a spokeswoman for finance minister Wolfgang Schaeuble said, adding that it was up to the European Commission to ensure that the rules were respected. "That significantly reduces the risk of an investment in a bank going sour", said Jasper Lawler, Senior Market Analyst at LCG.

Germany, anxious that it would have to shoulder the bill for failed banks in countries such as Greece or Spain, had been central in writing the rules to force losses on the bondholders and large depositors of failing banks.

Intesa rose 4.4 percent at 12:58 Milan trading, pacing a 1.4 percent advance in the Bloomberg Europe Banks and Financial Services Index.

So the two banks will be closed down under national insolvency procedures, and the painful process of European Union bail-in - under which junior and senior bondholders absorb the losses - is averted.

Italy's bond yield spread over Germany see-sawed from 168 bps in early trade to 164 bps by midday.

Markets across Europe cheered as Italy's €17bn (£15bn) bail-out of two Italian banks was approved - but it raised questions over rules created to end taxpayer-funded rescues.

Italy will pay up to 17 billion euros ($19 billion) to break up two insolvent Venetian banks, which have posed a threat to the country's banking system, the government announced on Sunday. The 2014 ECB comprehensive assessment identified capital shortfalls, following which the two banks were put under monitoring by the ECB. To do that, however, the government has potentially used up the whole €20 billion it had set aside to help ailing banks.

"These measures will also remove 18 billion euros ($20 billion) in non-performing loans from the Italian banking sector and contribute to its consolidation", Vestager added.

Their liquidation with state support was hashed out less than three weeks after Spain organised an orderly sale of Banco Popular Espanol SA to Banco Santander SA without state aid, and amid talks to allow Italy to rescue Banca Monte dei Paschi di Siena SpA, the world's oldest bank, through a so-called precautionary recapitalization.