On Sunday 25 June, the European Commission authorised the Italian aid plan with a price tag potentially up to €17 billion, to liquidate two Venetian banks, Banca Popolare di Vicenza (BPVI) and Veneto Banca, and to sell their solvent activities to the Italian banking group Intesa Sanpaolo.
The markets seemed to react fairly well to this announcement on Monday 26 June, with Intesa Sanpaolo’s share registering a 5.08% increase as of 4 PM.
Basically, the Italian State has undertaken to pay €4.785 billion to Intesa, in order to maintain its capitalisation and reinforce its assets situation. The Italian authorities will also provide up to €12 billion in the form of a public guarantee on non-performing loans held by BPVI and Veneto Banca. However, it is expected that the guarantees actually used will be below this amount by 25%, according to the Commission.
Restructuring two liquidated banks
Savers’ deposits will furthermore remain fully protected following the dissolution of the two Italian banks, at a level of €100,000. Individual savers holding so-called ‘junior’ claims will also be compensated by the Italian State, from an envelope of nearly €200 million. These operations do not come in the framework of State aid, as it is natural persons who will be compensated.
According to the European institution, the operation will not lead to any competition distortions, as the two banks will be leaving the market and the transferred activities will be restructured and significantly scaled down. The economic activities of the two liquidated banks will effectively completely disappear and the salary mass and number of employees of the two banks will be reduced by 40%. 60% of BPVI and Veneto Banca branches will also go.
Finally, the Commission noted that the owners of the banks and their subordinated creditors were in the front line of contributions to these dissolutions, which has reduced the cost of the Italian State’s involvement.
As this aid plan was considered in line with EU rules on State aid (specifically, the 2013 communication adapting the State aid rules for financial institutions during the crisis), the Commission decided to approve it in order to avoid economic disturbances in the Venetian region.
€18 billion in non-performing loans transferred to a 'bad bank'
Margrethe Vestager, the European Commissioner for Competition, stressed that the measures would make it possible to remove €18 billion in non-performing loans from the Italian banking sector and contribute to its consolidation. The Commission’s decision authorises the transfer of the non-performing loans held by the above banks to a bad bank, as provided for by Italian law.
The burning question of NPL in Europe will, moreover, be discussed at the forthcoming July Ecofin Council, on the basis of an expert report (see EUROPE 11806). Italy holds the largest stock of non-performing loans by volume of any European country. In early June, the EU authorised the preventative recapitalisation of the Italian bank Monte dei Paschi di Siena (MPS), which was considered solvent (see EUROPE 11800).
On Saturday, the Italian government notified the State aid to the Commission after the European Central Bank (ECB) announced on Friday 23 June that the two Venetian banks were “failing or likely to fail”. The banks, which incidentally failed the stress tests carried out by the ECB in 2016, have suffered capital losses for five years, accumulated nearly 30% of NPLs and are also alleged to be suspected of fraud.
On Friday, the Single Resolution Board (SRB) said that the resolution of the two banks could be justified at European level in the public interest and therefore referred their liquidation to the insolvency procedures provided for in Italian national law.
Unlike the decision of 7 June on the resolution of Spanish bank Banco Popular (see EUROPE 11803), the SRB considered that the liquidation procedures would not compromise European financial stability or interrupt the continuity of critical functions.
In his decision, the SRB explained that the Italian insolvency procedures would meet the resolution objectives, as they ensure a “comparable degree of protection for depositors, investors, other customers, clients’ funds and assets”, without having recourse to the resolution instruments provided for by the banking recovery and resolution directive (BRRD).
Mixed reactions at the European Parliament
The chair of the committee on economic and monetary affairs of the European Parliament, Roberto Gualtieri (S&D, Italy), welcomed the actions of the Italian government, but said that a reflection was necessary, with a view to injecting more flexibility into the BRRD directive. This would make the concept of the ‘bail-in’ more operational, as banking union in the Eurozone is looking at its third banking crisis without having used it, he told an interview with La Stampa on Monday.
According to the chair of the Greens/EFA group, Philippe Lamberts of Belgium, the operation is a scandalous breach of the BRRD directive. Calling the Commission’s decision to authorise the liquidation plan of the two Venetian banks into question, he argued that small investors could have been entirely protected, without letting investors who took disproportionate risks off scot-free. This purely political decision will harm the credibility of banking union and create the conditions for unfair competition, he said in a press release. (Original version in French by Lucas Tripoteau and Marion Fontana)