Italy makes 5.2B euros in resources to keep 2 banks afloat


Italy began winding up two failed Veneto region banks on Sunday in a deal that could cost taxpayers up to 17 billion euros but puts an end to a long-running crisis and leaves the lenders' good assets in the hands of Intesa Sanpaolo.

Intesa, Italy's biggest retail bank, has paid a symbolic one euro for the two banks' good assets.

Milan-based Intesa can initially tap about €5.2 billion to take on some assets without hurting capital ratios, he said.

Veneto Banca and Banca Popolare di Vicenza, are midsize lenders in the Veneto, Italy's prosperous north east.

"The total resources mobilised could reach a maximum of 17 billion euros - but the immediate cost to the state is a little more than five billion", said Finance Minister Pier Carlo Padoan.

A rescue deal that will allow Italy to inject up to €6.6 billion into the country's fourth largest bank Monte dei Paschi di Siena has received all necessary approvals by European Union authorities, a top central bank official said.

The non-confidential version of the decision will be made available under the case number SA.45664 in the State Aid Register on the competition website once any confidentiality issues have been resolved. The rules apply, except when they don't, it seems. However, the financial position of the two banks continued to deteriorate.

The broad-based major European indices closed higher in Monday's trading session, as airline stocks and banks helped boost the markets.

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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.

A statement from Intesa said: "This intervention will safeguard the jobs at the banks involved, the savings of around two million households, the activities of around 200,000 businesses financially supported and, therefore, the jobs of three million people in the areas which record the country's highest economic growth rate".

Rome will provide a further "guarantee" of 400 million euros, Padoan said, with the remaining cash going to cover a huge hole due to bad loans.

But subordinate bond holders could face risks. In the past couple of weeks we've heard from central bank officials talk about the prospect of tighter policy with Fed officials still talking up the prospect of a third rate rise by the end of the year, while last week the markets complacency about a United Kingdom rate rise was given a jolt by the sudden about turn by Bank of England chief economist Andrew Haldane's sudden conversion to a more hawkish stance, adding a new dimension to the 5-3 split on the recent Bank of England decision to hold interest rates.

She also said that BPVI and Veneto Banca's rescue will remove €18 billion in non-performing loans from the Italian banking sector and "contribute to its consolidation".

The two banks were forced to seek government aid after they failed to raise capital from investors in 2016.

"If we don't recover it, we have already set aside money to deal with capital strengthening in critical banks, so not putting additional burden on state financing", Padoan also said.

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