Italy Approves $3.8 Billion Resolution Plan for Four Banks

  • Four banks' bad assets will be split into a separate unit
  • Intesa, UniCredit, UBI to anticipate required financing

Italy’s central bank and Finance Ministry approved a 3.6 billion-euro ($3.8 billion) resolution plan for four lenders placed under the Bank of Italy’s special administration, clearing the way for their rescue.

Banca delle Marche SpA, Banca Popolare dell’Etruria e del Lazio SC, Cassa di Risparmio di Ferrara SpA and Cassa di Risparmio della Provincia di Chieti SpA will be rescued with financing from the resolution fund, one of the instruments created under the region’s new rules to manage ailing lenders, the Bank of Italy said in a statement on Sunday.

The four companies were placed under administration by Italy’s regulators after their capital buffers were eroded. Italy has been seeking to accelerate banks’ disposals of soured loans by creating a bad bank, a plan that hasn’t gained the backing of the European Commission. The country’s bad loans reached a record high of 200 billion euros in September.

Italian authorities will split the banks’ bad assets, including non-performing loans, into a separate unit, with shareholders and subordinated-debt holders incurring some losses, the central bank said. The fund will provide financing to the bridge banks -- with their good assets -- both to cover the negative difference between the transferred assets and liabilities and to capitalize the entities.

Subordinated Bonds

Banca Marche’s 180 million euros of floating-rate bonds due June 2017 fell by 23.4 cents on the euro to a record low of 1.1 cents, data compiled by Bloomberg show.

"The main reason for implementing the resolution of the four banks now is to avoid bail-in of outstanding senior bonds," Royal Bank of Scotland Group Plc analyst Alberto Gallo wrote in a note to clients on Monday. "The obvious advantage is not hitting retail investors." 

The European Union’s Bank Recovery and Resolution Directive, which comes into force in January, aims to ensure stakeholders rather than taxpayers take the pain of resolving a failing bank. This includes holders of senior bonds, a class of security that was largely unscathed during the financial crisis, which may be converted into equity if a bank’s core capital levels fall. The four banks have about 2.4 billion euros in senior notes, RBS estimates.

18-Month Loan

The fund, which will be fully operative next year, will receive short-term financing by Intesa Sanpaolo SpA, UniCredit SpA and Unione di Banche Italiane SpA through an 18-month loan that will give the fund sufficient liquidity to rescue the four lenders.

To implement the resolution plans for the lenders, Italy’s cabinet on Sunday approved a decree law that includes procedural measures on the management of bank crises, the government said in a statement.

The decree includes rules on deferred tax assets, as well as faster procedures for the setting up of the national resolution fund and bridge banks. The decree law doesn’t include any state financing for banks under resolution or for the national resolution fund, the government said.

The European Commission backed the plans for the four banks, it said late Sunday. Roberto Nicastro, former general manager of UniCredit, will be the sole chairman of the four bridge banks.

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