Published: Mon, June 26, 2017
Markets | By Noel Gibbs

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

The EC's competition commissioner, Margrethe Vestager, said allowing Italy to use state aid would "avoid an economic disturbance in the Veneto region".

"Italy will support the sale and integration of some activities and the transfer of employees to Intesa Sanpaolo", and said the action will "also remove $18 billion ($20 billion) in non-performing loans from the Italian banking sector and contribute to its consolidation".

"The government has utilised European rules in the best possible way", said Italian finance minister Pier Carlo Padoan on Sunday. In its turn, Intesa symbolically invested one euro and insisted that its own dividend policy remains intact.

Italy's premier says holders of accounts in two troubled Italian banks will have their savings guaranteed despite insolvency proceedings.

European Central Bank President Mario Draghi speaks on Monday, before a meeting of central bankers in Portugal later in the week.

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With government taking on the liquidation of so-called "bad" assets of the two banks, some of the costs might be recouped eventually, Padoan noted.

The yen dipped 0.2 per cent to 111.43 per dollar while sterling, on the up since more Bank of England policymakers have either called or said they are likely to call for higher interest rates, rose 0,1 per cent to $1.2741.

The new Single Resolution Board intervened for the first time early this morning (7 June) to save Banco Popular, a troubled Spanish bank whose deposits were protected without using taxpayers' money after Banco Santander made a decision to acquire its assets.

The case of the Veneto banks is yet another example of Italy wriggling out of strict European Union rules built after the financial crisis to prevent taxpayers from footing the bill in the event of the collapse of such institutions as banks.

On 1 June, it agreed "in principle" to the Italian state's rescue of Monte dei Paschi di Siena (MPS), the country's fourth largest bank, which had also been worn down by massive debts and required around €9 billion.

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The decree must be approved by midnight on Sunday, in time for the reopening of bank branches and markets on Monday. The bank collapsed after years of mismanagement and poor lending.

In exchange, Rome must accept a drastic EU-approved restructuring plan for BMPS expected to involve mass layoffs. The European Central Bank, which supervises the eurozone's lenders, said Friday that the two Italian lenders didn't have enough cash to survive. That means the total cost could reach €17bn.

A Banca Popolare di Vicenza sign is seen in Rome, Italy, March 29, 2017.

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.

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