By Sonia Sirletti and Alexander Weber
Italy will commit as much as 17 billion euros ($19 billion) to clean up two failed banks in one of its wealthiest regions, the nation’s biggest rescue on record.
The intervention at Banca Popolare di Vicenza SpA and Veneto Banca SpA includes state support for Intesa Sanpaolo SpA to acquire their good assets for a token amount, Finance Minister Pier Carlo Padoan said Sunday after an emergency cabinet meeting in Rome. Milan-based Intesa can initially tap about 5.2 billion euros to take on some assets without hurting capital ratios, Padoan said. The European Commission said it approved the plan.
The lenders will be split into good and bad banks, and the firms will be open on Monday, Prime Minister Paolo Gentiloni said. Intervention was needed because depositors and savers were at risk, he said. The northern region where they operate “is one of the most important for our economy, above all for small- and medium-size businesses.”
While an additional 12 billion euros will be available to cover potential further losses, Padoan said, the Italian Treasury estimates the fair value of the losses at about 400 million euros. That amount is already included in the funds provided to Intesa.
“Under current terms, this is a good deal for Intesa as it would increase earnings and market share at seemingly no cost to capital,” said Alexander Pelteshki, a fixed-income investment manager at Kames Capital Plc.
Intesa rose as much as 4 percent in Milan trading, the most in two months, and was up 3.6 percent at 2.71 euros as of 9:03 a.m. The stock has gained 11 percent this year.
The government tried for months to find a way to keep the banks afloat, including an appeal to wealthy businessmen in the region to contribute to a rescue. Those efforts ended Friday when the European Central Bank said the two banks are failing or were likely to fail and turned the matter over to the Single Resolution Board in Brussels for disposal. The SRB, in turn, passed the issue back to Italian authorities to allow the banks to be wound down under local law.
Intesa agreed to purchase the assets of the two banks for 1 euro, the lender said in a statement Monday. The intervention will safeguard jobs at the banks as well as the savings of about 2 million households and the financial interests of 200,000 businesses, it said. The agreement gives Intesa the right to return to the liquidators at-risk performing loans with a face value of 4 billion euros should their quality deteriorate.
The Bank of Italy appointed administrators for the two banks, including former Monte dei Paschi di Siena SpA Chief Executive Officer Fabrizio Viola.
Since the ECB’s decision Friday, Italy rushed to assemble the measures to carry out the plan because a local regulatory framework was required to allow the banks to open Monday. The deal crafted over the weekend is in line with the bloc’s state-aid rules. Shareholders of the two banks as well as holders of subordinated debt “fully contributed” to the plan, limiting costs of the Italian state, EU Competition Commissioner Margrethe Vestager said in a statement.