2 troubled Italian banks failing, to face insolvency

The European Central Bank ruled on Friday night that those banks were "failing or about to fail".

Their proposal envisaged about 1.3 billion euros going into new tier one and tier two bonds that the banks would issue to them, and another 300 million euros into their shares, the sources said.

The country's top retail bank Intesa Sanpaolo (ISP.MI) is set to buy the good assets for one euro, leaving the state to foot the bulk of the bill for losses stemming from the banks' bad loans, legal risks and restructuring costs.

The offer was briefly discussed with the Italian Treasury in early June but the funds never got a formal response, the sources said, adding recent reports of a possible deal with Intesa came as a surprise. 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.

The European Central Bank effectively euthanased two small Italian banks late Friday, in another sign that the eurozone financial system remains vulnerable even as the economy improves.

Premier Paolo Gentiloni defended the swift action by the government as vital for ensuring Italy's slow economic recovery isn't derailed by a "disorderly" failure of Veneto Banca and Banca Popolare di Vicenza.

It ruled they were "failing or about to fail", and would now face insolvency proceedings in Italy.

Padoan told reporters that the overall price tag for the rescue operation would eventually be almost 17 billion euros ($20 billion) because it would include Italian government "guarantees" for 12 billion (some $13.5 billion).

The plan has sparked criticism from some European officials who said Italy was being allowed to cut corners, while at home, opposition politicians have also criticized the scheme put forward by the government.

  • Zachary Reyes