Italy is rushing to approve emergency rules outlining liquidation procedures for two failed banks in the northern Veneto region in time for them to open on Monday.
The government is set on Sunday to approve a decree law setting up rules that would let Intesa Sanpaolo SpA buy some assets of Banca Popolare di Vicenza SpA and Veneto Banca SpA at a token price and determine the state intervention needed to avoid losses for senior bondholders.
The European Central Bank on Friday declared the lenders failing or likely to fail, and said both would be wound up under Italian insolvency rules. A local regulatory framework is needed before the banks can open for business on Monday, as the government wants to smooth the sale of the stricken lenders’ assets. Italy may include changes to its bankruptcy law in the decree it’s readying, according to the Italian newspaper La Stampa.
The Finance Ministry has said all measures would be taken to ensure that senior creditors and depositors are protected in their liquidation under the national insolvency law, and customers would see no interruption in service. The Bank of Italy is expected to appoint administrators to liquidate the bad assets, while Intesa may formalize its purchase of good assets by Monday, according to local press reports. State intervention may cost as much as 7 billion euros ($7.8 billion), Corriere della Sera reported.
A cabinet meeting scheduled Saturday was delayed as talks between Intesa and the government dragged on, according to newspapers. Among issues still to be resolved are the number of layoffs, which may be funded with state money, and the number of branches that could be sold or closed.
The government tried for months to rescue the two banks, but its efforts ended on Friday when the ECB turned the matter over to the Single Resolution Board in Brussels for disposal. The SRB, in turn, passed the issue to Italian authorities after concluding there was no public interest in resolving them under European Union law, a process that would have exposed senior debt holders to losses.
The two banks were forced to ask the government for aid after they failed to raise capital from investors in 2016. After reviewing their books, the ECB in April said they needed about 6.4 billion euros of new capital, prompting a search for ways to bridge the gap.
Previously, Italy sought to rescue the lenders through a so-called precautionary recapitalization, using a mix of state and private funds as well as debt and equity writedowns to finance the removal of bad debts. The private sector balked at the plan.