The move to bail out two Italian banks for €5.2 billion last Friday (June 23rd) comes two days after the European Central Bank stated that Banca Popolare di Vicenza and Veneto Banca were “failing or likely to fail. “
Italy’s Prime Minister, Paolo Gentiloni, said the bailout was needed to protect savers and ensure "the good health of our banking system" with the good assets be taken over by the Intesa Sanpaolo banking group whose branches and employees will be under new management on Monday morning but up to 4,000 job losses are predicted.
The Italian Minister of the Economy said the government is guaranteeing a maximum of €12 billion for potential losses to Intesa from bad and risky loans held by the failed banks.
Under the agreement, senior bondholders and depositors will be protected.
The use of Intesa Sanpaolo means the bailout can be approved by the European Commission and avoids tough European rules although many already are claiming that the deal is illegal.
Intesa paid €1 for the good assets of the two failed banks and the deal is expected to be signed off by the Italian government on Sunday.
This move to start securing Italy’s bombed out banks which hold €350 billion in non-performing loan, a third of the eurozone's bad debt.
The government is set on Sunday to approve a decree law setting up rules that would let Intesa Sanpaolo SpA buy some assets of Banca Popolare di Vicenza SpA and Veneto Banca SpA at a token price and determine the state intervention needed to avoid losses for senior bondholders.
The Bank of Italy will appoint administrators to liquidate the banks’ bad assets, with the taxpayer expecting to stump up around €7 billion.
The Italian government attempted to find a solution for the two banks, but on Friday the European Central bank handed the file to Europe’s new Single Resolution Board.
The Board handed the file back to the Italian government having said there was no public interest in resolving the problem banks future under EU law which would have exposed senior debt holders, thought to be the ECB and Italy’s ‘great and good,’ to massive losses.
According to financial observer, Mike Shedlock, “if the ECB is protecting its own portfolio of garbage Italian debt, this is exactly the kind of rule-bending, no details, no discussion activity that we could expect, and now see.”
