Italy Is Prepared to Spend Billions in Shutdown of Two Banks
June 25 2017 - 02:54PM
Dow Jones News
By Deborah Ball
ROME -- Italian authorities said Sunday they were prepared to
spend as much as EUR17 billion ($19 billion) as part of the
shutdown of two regional banks, in a deal that will transfer the
lenders' best assets to Intesa Sanpaolo SpA for a nominal sum.
Veneto Banca and Banca Popolare di Vicenza, are midsize lenders
in the Veneto, Italy's prosperous north east. Both have been
flailing for several years despite efforts to shore up their
capital and restore their health.
On Friday evening, the European Central Bank declared that the
pair were set to fail, having "repeatedly breached supervisory
capital requirements."
That set the stage for the government intervention over the
weekend, which will involve splitting Veneto Banca and Banca
Popolare di Vicenza into good and bad assets.
The government passed a decree Sunday that will effectively sell
the good part of the two banks to Intesa, Italy's second-largest
and best-capitalized bank. Intesa said last week that it would be
willing to buy the best assets for a token price of EUR1 as long as
the government assumed responsibility for liquidating the banks'
large portfolio of sour loans.
The EUR17 billion includes the cost of Rome's responsibility for
the bad loans, along with items such as covering legal exposure,
restructuring of the remaining bank and paying for the expense of
personnel issues associated with splitting the two banks into a
good one and a bad one.
The EUR17 billion consists of EUR5.2 billion to Intesa and up to
another EUR12 billion in state guarantees, including those
protecting Intesa from any negative impact to its capital ratios
resulting from the acquisition.
At a press conference Sunday, Prime Minister Paolo Gentiloni
said that the two banks will open for business regularly on Monday.
The banks' situation "reached a point that required a rescue in
order to avoid the risk of a disorderly failure," he said.
Italy obtained European Union permission to deal with the Veneto
banks using national insolvency laws, thus avoiding inflicting
losses on senior bondholders.
Intesa's offer to buy the good bank resulting from this
operation was the only "significant" offer, according to an Italian
government official.
The case of the Veneto banks is yet another example of Italy
wriggling out of strict EU rules built after the financial crisis
to prevent taxpayers from footing the bill in the event of the
collapse of such institutions as banks.
When the EU authority in charge of winding down the bloc's
failing banks -- the Single Resolution Board -- decided it wouldn't
take the case, it handed all power over to Italian authorities.
The SRB said Friday night it wouldn't take action because
neither of the banks would have "a significant adverse impact on
financial stability."
So the two banks will be closed down under national insolvency
procedures, and the painful process of EU bail-in -- under which
junior and senior bondholders absorb the losses -- is averted. In
Italy, a majority of bonds are in the hands of mom and pop
investors.
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.
Italian authorities tried in March to use another exception in
EU rules to prop up the two Veneto banks. Under so-called
precautionary recapitalization, Italy could have injected state
money into the ailing lenders, but the commission didn't approve
the plans.
Stress tests in 2014 found a multibillion-euro capital shortfall
at Veneto Banca and Banca Popolare di Vicenza. A EUR3.5 billion
capital investment by a government-orchestrated banking fund failed
to fill that gap.
The two Veneto banks reflect the weakness in Italy's banking
sector, which is struggling to digest about EUR200 billion in bad
loans and has suffered from low profitability and insufficient
capital for years. The two banks have a combined capital shortfall
of about EUR6.4 billion. In March, they requested government help
to stay afloat.
The government is set in the coming weeks to take control of
Banca Monte dei Paschi di Siena, Italy's No. 4 bank and one whose
problems have threatened the larger stability of Italy's banking
system. Rome also had to shut down four small lenders.
--Julia-Ambra Verlaine contributed to this article.
Write to Deborah Ball at deborah.ball@wsj.com
(END) Dow Jones Newswires
June 25, 2017 15:39 ET (19:39 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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