World Economy

Italy to Rescue Two Venetian Banks Facing Insolvency

Italy to Rescue Two Venetian Banks Facing InsolvencyItaly to Rescue Two Venetian Banks Facing Insolvency

Italy will pay up to €17 billion ($19 billion) to break up two insolvent Venetian banks, which have posed a threat to the country's banking system, the government announced late Sunday.

Both face bankruptcy and European authorities had urged Italy to devise a rescue framework, selling off the good assets of the stricken Banca Popolare di Vicenza and Veneto Banca and transferring their toxic assets to a "bad bank", essentially financed by Rome, AFP reported.

The move comes less than a month after the EU anti-trust authority approved Italy's massive rescue of the country's troubled third-largest bank, Monte dei Paschi di Siena, which has been in deep trouble since the worst of the eurozone debt crisis.

The Italian government will stage the two Venetian banks' rescue with support from the country's biggest retail bank, Intesa Sanpaolo, which will take up the good assets to protect the banks' customers and to minimize staff lay-offs.

The European Commission in a statement said it "has approved, under EU rules, Italian measures to facilitate the liquidation of BPVI and Veneto Banca under national insolvency law". EU competition commissioner Margrethe Vestager said that Italy considers state aid necessary "to avoid an economic disturbance in the Veneto region".

She added that "Italy will support the sale and integration of some activities and the transfer of employees to Intesa Sanpaolo".

  A Symbolic Euro

Finance Minister Pier Carlo Padoan said €4,785 billion would be set aside immediately to "maintain capitalization" of Intesa Sanpaolo, which has made that a condition of any cooperation. 

For its part Intesa has put one symbolic euro on the table and attached a further string to the deal by insisting its share dividend policy remain unaffected. "The total resources mobilized could reach a maximum of €17 billion—but the immediate cost to the state is a little more than five billion," said Padoan.

"This decree allows the stabilization of the Venetian economy and safeguarding of the economic activity of the Venetian banks," said Padoan. The 19-member eurozone has expressed concern at the perilous state of some Italian banks as Rome tries to address piles of risky loans sitting on the books of some of them.

  European Stocks Rebound

European stock markets fizzed higher Monday as investors toasted news of the €17billion rescue deal. Equity markets in London, Paris and Frankfurt all rose, while US stocks were mixed, with investors shifting funds from highly valued technology shares to disfavored sectors, including retailers.

The news was greeted with relief across trading floors, amid fears of a potential new phase in the eurozone debt crisis. 

"Italy has just shown the age of bailouts is not over. That significantly reduces the risk of an investment in a bank going sour," said Jasper Lawler, senior market analyst at LCG.

Some cautioned, however, that the weekend's rescue mission could be one of several to come.

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