Stay of resolution

26 June 2017 By Peter Thal Larsen Follow @Peter_TL

Intesa Sanpaolo is taking over the good bits of two smaller failed lenders, leaving taxpayers to foot a bill of up to 17 billion euros. Protecting savers is politically expedient. But the rescue exposes a gaping hole in Europe’s new regime for dealing with troubled banks.

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Italy on June 25 wound up two failed regional banks in a deal that could cost the state up to 17 billion euros ($19 billion) and will leave the lenders’ good assets in the hands of the nation’s biggest retail bank, Intesa Sanpaolo.

The government will pay 5.2 billion euros to Intesa, and give it guarantees of up to 12 billion euros, so that it will take over the remains of Popolare di Vicenza and Veneto Banca, which collapsed after years of mismanagement and poor lending.

The decree outlining the bailout will have to be voted into law by parliament within 60 days.

Under the plan, the banks’ soured loans, as well as legal risks stemming from a mis-selling scandal, will be moved to a bad bank, partly financed by the state.

“Without Intesa Sanpaolo’s offer - the only significant one submitted at the auction held by the government - the crisis of the two banks would have had a serious impact on the whole Italian banking system,” Intesa Chief Executive Carlo Messina said in a statement on June 25.

The European Commission said it had approved the bailout, arguing that there was no distortion of competition because the two banks were leaving the market. Margrethe Vestager, the Competition Commissioner, said state aid was necessary to “avoid an economic disturbance in the Veneto region”.

Intesa shares were up 3.9 percent at 2.72 euros by 1000 BST on June 26.

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