A rescue deal that will allow Italy to inject up to €6.6 billion into the country's fourth largest bank Monte dei Paschi di Siena has received all necessary approvals by EU authorities, a top central bank official said.
The Bank of Italy's deputy governor Fabio Panetta told a press briefing today that Monte dei Paschi's bailout was "a done deal."
At the same briefing, chief supervisor Carmelo Barbagallo said the EU Commission had only to formalise its approval but there were no doubts that, unlike regional rival Popolare di Vicenza and Veneto Banca, Monte dei Paschi would be able to tap state aid to remain in business.
Barbagallo said Monte dei Paschi would close a bad loan sale, a key plank of its rescue plan, thanks to the fact that banking industry bailout fund Atlante could now divert cash previously earmarked for the Veneto banks' soured debts to buy Monte dei Paschi's bad loans.
Monte dei Paschi, Veneto and Vicenza were the three main concerns and they are now dealt with – one way or another
Meanwhile, Italian banking shares rallied today after a deal to wind down two ailing regional lenders allowed Rome to draw a line under its biggest banking headache, with taxpayers rather than the financial industry shouldering the bulk of the losses.
Rome on Sunday approved an emergency decree that leaves the best assets of Banca Popolare di Vicenza and Veneto Banca in the hands of Intesa Sanpaolo, which is taking them on at the symbolic price of just €1.
The government will pay €5.2 billion to Intesa, Italy's top retail bank, to ensure its capital ratios and dividend policy will not be affected by the deal, and give it guarantees of up €12 billion to shield it from any unexpected loss.
The total exposure for the state is for up to €17 billion, although the Italian treasury estimates the final bill will be much lower than that.
After drawn-out negotiations with Brussels, Italy won permission to liquidate the two banks under national insolvency procedures rather than have European regulators pull the plug on their own, potentially harsher, terms.
The Veneto deal comes after Rome was also allowed to bail out the country's fourth biggest bank, Monte dei Paschi di Siena , removing another systemic threat and helping restore confidence in Italy's fragile financial industry. To do that, however, the government has potentially used up the whole €20 billion it had set aside to help ailing banks.
"This is a major step in the direction of a cleaner Italian banking sector. Monte dei Paschi, Veneto and Vicenza were the three main concerns and they are now dealt with – one way or another," fund manager Axiom Alternative Investments said in a note.
the Italian banking industry, Europe's fourth largest, remains saddled with some €300 billion of gross soured debts
Intesa said tpday it would close 600 branches and lay off 3,900 people as a result of the Veneto deal, but those restructuring costs are covered by public money.
The whole banking system breathed a sigh of relief, as a wind-down of the two Veneto banks under EU rules meant to stop state bailouts would have cost other Italian lenders €12.5 billion to guarantee deposits below €100,000 – spreading losses across an already battered sector.
The Monte dei Paschi and Veneto deals will take some €45 billion in bad loans off the banking sector's balance sheet. But even so, the Italian banking industry, Europe's fourth largest, remains saddled with some €300 billion of gross soured debts, the legacy of a deep recession and poor lending practices.
Banks are under pressure to sell those debts, but are reluctant to do so as they would have to book further writedowns that could force them to tap the market for cash.