26 June 2017
Reporter: Stephanie Palmer

ECB calls time on struggling Italian banks

Two Italian banks have been deemed ‘failing or likely to fail’ by the European Central Bank (ECB), and will be wound up under Italian insolvency procedures.

Banca Popolare di Vicenza (BPVI) and Veneto Banca “repeatedly breached supervisory capital requirements”, the ECB said. While they had been allowed time to present new capital plans, they had ultimately been “unable to offer credible solutions”.

The European Commission has approved use of state aid to facilitate the liquidation, which will involve the sale of some of the banks’ businesses to Intesa Sanpaolo.

In a statement, the commission said: “Resolution action is not warranted in the public interest in either case.”

It added that the banks “will be wound up in an orderly fashion and exit the market”.

Margrethe Vestager, the EU commissioner in charge of competition policy, said: "Italy considers that state aid is necessary to avoid an economic disturbance in the Veneto region as a result of the liquidation of BPVI and Veneto Banca, who are exiting the market after a long period of serious financial difficulties.”

“The commission decision allows Italy to take measures to facilitate the liquidation of the two banks: Italy will support the sale and integration of some activities and the transfer of employees to Intesa Sanpaolo. Shareholders and junior creditors have fully contributed, reducing the costs to the Italian State, whilst depositors remain fully protected.”

“These measures will also remove €18 billion in non-performing loans from the Italian banking sector and contribute to its consolidation."

Intesa Sanpaolo will acquire certain assets, liabilities and legal relationships from the two banks for a token price of €1.

A statement from Intesa said: “This intervention will safeguard the jobs at the banks involved, the savings of around two million households, the activities of around 200,000 businesses financially supported and, therefore, the jobs of three million people in the areas which record the country’s highest economic growth rate.”

As part of the state aid, Italy will provide a cash injection of around €4.79 billion, and will provide guarantees of up to €12 billion, primarily on financing the liquidation mass.

The state guarantees are expected to be called upon only if the liquidation mass is not enough to compensate Intesa for financing it.

The European Commission clarified: “Both guarantees and cash injections are backed up by the Italian state's senior claims on the assets in the liquidation mass. Correspondingly, the net costs to the Italian state will be much lower than the nominal amounts of the measures provided.”

BPVI and Veneto Banca are both small commercial banks located in the Veneto region of Italy and operating primarily in the north of the country.

Both have been under monitoring from the ECB since 2014, and have been operating at a loss for several years.

A statement from BPVI said: “The board has expressed their grateful appreciation and staunch support to the management who has been leading Banca Popolare di Vicenza throughout these difficult times.”

The statement acknowledged the proposal from Intesa Sanpaolo, and said the board “wished every success in the challenging work to be started in the coming days”.

Veneto Banca has not yet responded to a request for comment.

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