Italy to pay up to €17 billion to deal with two troubled banks

The Italian government is stepping in to wind up two failing lenders and prevent a bank run, at a total cost of up to €17 billion

26 June 2017, 8:18am
Veneto Banca and Banca Popolare di Vicenza will be divided into good and bad banks
Veneto Banca and Banca Popolare di Vicenza will be divided into good and bad banks
Italy will pay up to 17 billion euros to break up two insolvent Venetian banks, which have posed a threat to the country's banking system, the government announced on Sunday.

After an emergency cabinet meeting, ministers agreed to a decree splitting Veneto Banca and Banca Popolare di Vicenza into ‘good’ and ‘bad’ banks, keeping branches open.

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 ‘good’ assets are being acquired by Italy’s biggest retail bank, Intesa Sanpaolo, with the Italian government handing about €5 billionn to Intesa as part of the deal.

The lenders will then be liquidated, which leaves the state footing the bill for bad loans on both banks’ books, plus restructuring costs.

The Italian government would provide state guarantees worth up to €12 billion to cover potential losses at the ‘bad’ bank, Pier Carlo Padoan, the finance minister, told reporters in Rome. That means the total cost could reach €17 billion.

The move comes less than a month after the EU anti-trust authority approved Italy's massive rescue of the country'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.

On Friday, the European Central Bank ruled that the two lenders, based in the Veneto region of Italy, were “failing, or likely to fail”. 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.

The European Commission said in a statement 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".

She added that "Italy will support the sale and integration of some activities and the transfer of employees to Intesa Sanpaolo".