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

Paterniano Del Favero
Giugno 27, 2017

Intense will also receive €5.2 billion from the state to maintain its capital ratios, part of the state aid that the European Commission has approved on Monday.

Intesa Sanpaolo, the country's biggest retail bank, will take on the lenders' good assets.

Whereas the latter has put a symbolic euro on the table, the cost to the Italian state will be around $11bn.

"These measures will also remove €18bn in non-performing loans from the Italian banking sector and contribute to its consolidation", she added.

It was "a very pragmatic decision" to interpret the BRRD leniently in this case and shouldn't affect investor confidence in the European banking union, said Marina Brogi, a professor of global banking and capital markets at Sapienza University in Rome.

On 24 June 2017, Italy notified to the Commission its plans to grant State aid to wind-down BPVI and Veneto Banca. The remaining activities will be wound down. To do that, however, the government has potentially used up the whole €20 billion it had set aside to help ailing banks.

The state guarantees are expected to be called upon only if the liquidation mass is not enough to compensate Intesa for financing it.

The agreement bolstered bank stocks across Europe, with Intesa leading gainers, while putting into question the effectiveness of European rules meant to ensure that private investors share the burden of bank bailouts.

The euro fell 0.1 per cent to US$1.1185, with the dollar edging up 0.1 per cent as the gap between short- and longer-dated USA government bond yields held close to recent 10-year lows hit on signs inflation is likely to remain subdued.

The subsequent deep integration by Intesa will return the sold parts to viability.

Questioning the fairness of BRRD when it comes to small banks, the European Union executive has denied that the eurozone banks rulebook was unfair or needed change.

Analysts at CreditSights estimate that it will be taking on around €28 billion of risk-weighted assets.

The logo of Veneto Banca bank is seen in Venice, Italy January 31, 2016. A bank that is declared as failing or likely to fail by the ECB is not eligible for a precautionary recapitalisation. They have been loss-making for a number of years. Both have been flailing for several years despite efforts to shore up their capital and restore their health.

The two Italian banks have dodged the long arm of the bank recovery and resolution directive (BRRD) because the SRB decided that their failure would not have an adverse impact on financial stability in Italy.

Bank of Ireland continues to lag its main rival, with shares down nearly half a percent to 22.6 cent each.

"Intesa gets a free gift, the state takes on all the bad stuff and the taxpayer pays", Renato Brunetta, parliamentary leader for former prime minister Silvio Berlusconi's Forza Italia (Go Italy!) party said on Thursday.

The Federal Reserve raised rates this month for the second time this year and has said it expects to raise again later this year.

It turns out that the new rules - while they may have saved taxpayers some money in this case - have their exceptions. That amount is already included in the funds provided to Intesa.

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