Italy's banking system is once again the focus on investor concern Monday after officials outlined plans to rescue two failed lenders that appeared to circumvent newly-adopted rules that would prevent the use of taxpayers' funds.
Venento Banca SpA and Banca Popolare di Vicenza SpA will be wound down and folded into the operations of Intesa Sanpaolo SpA (ISNPY) , the country's second-biggest bank, Italy's finance ministry said over the weekend, after the European Central Bank declared the troubled lenders 'failing or likely to fail' late Friday.
"The intervention of Intesa Sanpaolo makes it possible to avoid the serious social consequences that would have otherwise derived from compulsory administrative liquidation proceedings for the two banks," Intesa said in a statement Monday. "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."
However, the plans will see around €17 billion in state funds used to wind down the banks, protect Intesa's balance sheet and shield certain investors from losses, a strategy which has been approved by European Commission officials in Brussels.
Those plans appear to contradict newly-adopted rules on bank rescues, in the form of the Bank Recovery and Resolution Directive, which demand that depositors and investors are "bailed-in" before taxpayers' funds are used, although national regulators are permitted to circumvent them if they deem their use would result in systemic financial risks as a result.
Italy's banks hold bad loans that are worth around 12% of the country's GDP, while the state is one of the world's largest creditor nations, with more than €2.27 trillion in government debt.
Intesa shares, however, rose firmly at the opening of trading in Milan, rising 3.7% to change hands at €2.708 each, with investors factoring in the purchase of more than €26 billion in performing loans and further financial assets of around €9 billion, according to the company's statement.
Intesa will also get around €5.2 billion from the Italian state, as well as further guarantees, to soften the blow of taking on some of the bad debts of both Veneto and Vicenza.