Italian PM 'guarantees' savers' accounts in 2 troubled banks

Italy won its battle to protect senior creditors of two failed banks in the country's northern Veneto region after convincing European Union authorities to allow the wind-down under local law.

A group of four global investment funds offered to inject 1.6 billion euros ($1.79 billion) of fresh capital into two ailing Italian banks in Veneto at the end of May, sources told Reuters, but their plan was not pursued by Rome along with more recent approaches to be part of a rescue deal. Many Italian banks have sold bonds to clients who bought them unaware of the risks involved, making it politically hard to inflict losses on holders.

The two banks have struggled to overcome high levels of loans that were not being paid back.

Economy Minister Pier Carlo Padoan said the total funds "mobilized" by the state would be for up to 17 billion euros - three times more than had initially been estimated to recapitalize the banks with public money.

Weak banks that can't lend adequately to businesses have been a key vulnerability for Italy in particular and for the eurozone economy as a whole.

In a separate statement, the European Commission said it is in constructive discussions with Italian authorities on draft proposals submitted by Italy for state support, and good progress is being made to find a solution soon.


Padoan said that on top of the 5.2 billion euros payment to Intesa, which includes 1.3 billion euros to cover job cuts, the state will offer guarantees to fund potential losses arising from due diligence of the two banks' soured and risky loans.

She added: "These measures will also remove 18bn euros in non-performing loans from the Italian banking sector and contribute to its consolidation". "I can't see it", Padoan told reporters after the government spent the weekend drafting an emergency decree to liquidate the two banks.

The agreement followed months of talks over the fate of the world's oldest bank and Italy's fourth-biggest lender - the worst performer in last year's European stress tests.

The decree effectively means that the Veneto banks' branches and employees will be part of Intesa Sanpaolo by Monday morning, a move created to avoid a potential run on deposits that could have spread chaos across the whole banking industry.

But subordinate bond holders could face risks. Italian media reported that Intesa Sanpaolo's taking over the troubled banks could lead to thousands of layoffs and the closing of hundreds of small branches. If you would like to discuss another topic, look for a relevant article.

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