Italy winds up Veneto banks at cost of up to 17 billion euros

https://www.reuters.com/article/us-eurozone-banks-italy-veneto-idUSKBN19G0LD

Italy began winding up two failed regional banks on Sunday in a deal that could cost the state up to 17 billion euros ($19 billion) and will leave the lenders’ good assets in the hands of the nation’s biggest retail bank, Intesa Sanpaolo.

The government will pay 5.2 billion euros to Intesa, and give it guarantees of up 12 billion euros, so that it will take over the remains of Popolare di Vicenza and Veneto Banca, which collapsed after years of mismanagement and poor lending.

Economy Minister Pier Carlo Padoan said the total funds “mobilized” by the state would be for up to 17 billion euros – three times more than had initially been estimated to recapitalize the banks with public money.

The deal, approved by the European Commission, allows Italy to solve a banking crisis on its own terms, ensuring the two Veneto lenders are not wound down under potentially tougher European rules. The cost for taxpayers, however, is hefty.

“Those who criticize us should say what a better alternative would have been. I can’t see it,” Padoan told reporters after the government spent the weekend drafting an emergency decree to liquidate the two banks.

The decree effectively means that the Veneto banks’ branches and employees will be part of Intesa Sanpaolo by Monday morning, a move designed to avoid a potential run on deposits that could have spread chaos across the whole banking industry.

The decree will have to be voted into law by parliament within 60 days.

Under the plan, the banks’ soured loans, as well as legal risks stemming from a mis-selling scandal, will be moved to a bad bank, partly financed by the state. Junior bondholders and shareholders in the two banks will suffer losses, but senior bonds and depositors will be protected.

Padoan said that on top of the 5.2 billion euros payment to Intesa, which includes 1.3 billion euros to cover job cuts, the state will offer guarantees to fund potential losses arising from due diligence of the two banks’ soured and risky loans.

A treasury source said the government estimated that the total 12 billion euros in guarantees would translate into a fair-value exposure of just 400 million euros for the state, but did not explain how it arrived at that figure.

http://www.marketwatch.com/story/italy-may-spend-billions-to-shut-two-failing-banks-2017-06-25

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.

———-

bang..gone..it starts as a dribble but ends up a river..

“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.”

good bank..bad bank..

“Under the plan, the banks’ soured loans, as well as legal risks stemming from a mis-selling scandal, will be moved to a bad bank, partly financed by the state. Junior bondholders and shareholders in the two banks will suffer losses, but senior bonds and depositors will be protected.”

401

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~ by seeker401 on June 27, 2017.

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