Outside the European banking resolution framework, EU rules foresee a possibility for Italy to seek Commission approval for the use of national funds to facilitate the liquidation by mitigating such regional economic effects.
But it was little comfort for staff of the failing lenders as Intesa Sanpaolo, the bank which is picking up viable parts of the lenders for a token €1, said it would close 600 branches and lay off 3,900 staff. Santander plans to raise 7 billion euros to bolster Popular Espanol’s capital in a deal that didn’t involve any state money.
The two banks are struggling to cope with a large number of bad loans and on Friday (June 23), the European Central Bank pulled the plug on them. The final say on which path was to be picked was given by eurozone’s bank crisis agency, the Single Resolution Board (SRB).
They had already been rescued once: their failed listings had necessitated the establishment of the €4.25 billion Atlante rescue fund in April 2016 – a fund in which Intesa Sanpaolo was the largest shareholder with a €845 million stake.
Italian Prime Minister Paolo Gentiloni said the rescue was needed to protect savers and ensure “the good health of our banking system”.
Intesa agreed to purchase the assets of the two banks for 1 euro, the lender said in a statement on Monday.
It has also been granted €12 billion of state guarantees to cover the wind down of the banks and the impact of the acquisition – this is where the potential €17 billion cost to the taxpayers comes from. The government tried for months to find a way to keep the banks afloat, including an appeal to wealthy businesspeople in the region to contribute to a rescue. The deal crafted over the weekend is in line with the bloc’s state-aid rules. The two failed institutions will be split into good and bad banks.
The solution will limit competition distortions because the two Veneto banks will exit the market, or be significantly downsized in the case of those activities that are transferred to Intesa, according to the commission. European Union law foresees that, in such circumstances, national insolvency rules apply and it is for the responsible national authorities to wind up the institution under national insolvency law.
“This is a major step in the direction of a cleaner Italian banking sector”.
“To be effective and avoid sizeable unintended consequences it would have been better to give banks more time to modify their liabilities before” the new rules on bank resolutions came into force, she said.
In March 2017, BPVI and Veneto Banca made requests to the Italian State for a “precautionary recapitalisation” to address their capital shortfalls, which were then subject to discussion between the Commission and the Italian authorities. Milan-based Intesa can initially tap about 5.2 billion euros ($5.8 billion) to take on the assets without hurting its capital ratio.