Taxpayers in Italy face €17bn bank bailout bill
Italy has begun winding up two failed regional banks in a deal that could cost taxpayers there €17bn and will leave the lenders' good assets in the hands of the nation's biggest retail bank, Intesa Sanpaolo.
The government will pay €5.2bn to Intesa, and give it guarantees of up €12bn, 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 "mobilised" by the state would be for up to €17bn - three times more than had initially been estimated to recapitalise 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 criticise 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 meant that the Veneto banks' branches and employees were 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 €5.2bn payment to Intesa, which includes €1.3bn 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 €12bn in guarantees would translate into a fair-value exposure of just €400m for the state, but did not explain how it arrived at that figure.
The EU Commission also said in a statement that the "net costs to the Italian state will be much lower than the nominal amounts of the measures provided". It too did not explain.
Banking analysts, however, said the state could ultimately be on the hook for up to €17bn, even though some value could be salvaged once the soured loans were fully analysed, limiting the final bill for taxpayers.
Intesa Sanpaolo, Italy's best-capitalised large bank, said last week it was open to purchasing the rump of the good assets for one euro on condition Italy's government passed a decree agreeing to shoulder the cost of winding down the two banks.
Setting tough conditions for the deal, Intesa CEO Carlo Messina has insisted that his bank's capital ratios and dividend policy would not be affected by the transaction.
"Without Intesa Sanpaolo's offer - the only significant one submitted at the auction held by the government - the crisis of the two banks would have had a serious impact on the whole Italian banking system," Messina said in a statement.
The ECB, which supervises the two lenders, declared on Friday that they were "failing or likely to fail", setting in motion the process that led to them being wound down. (Reuters)