Italy’s banks to shoulder €1.8bn burden for rescue

Italy’s banks will shoulder most of the burden of rescuing four of the nation’s lenders, incurring €1.8 billion in extra costs for the year under a bailout plan that spares senior bondholders and large depositors.

The rescue will add to pressure on an industry hobbled by weak economic growth and narrow lending margins. Profitability remains below the level before the 2008 financial crisis.

“Italy’s bank resolution is no free lunch,” Royal Bank of Scotland analyst Alberto Gallo said. “It saves regulators the political cost of bailing-in senior, and retail investors with it, but it will cost at least one to two quarters of earnings to the banking system.”

Italy late on Sunday approved a €3.6 billion resolution plan for Banca delle Marche , Banca Popolare dell’Etruria e del Lazio, Cassa di Risparmio di Ferrara and Cassa di Risparmio della Provincia di Chieti , four banks saddled with bad loans. The plan calls for a collective contribution of €1.8 billion by the end of the year, on top of the €600 million Italian banks have already set aside this year for the country’s national resolution fund.

Under new European rules, banks contribute a minimum of funds annually, weighted to reflect their liabilities. When ordinary funds aren’t sufficient they can be called on to finance up to three times the base amounts.

This is a “systemic solution” to manage the four banks’ crises, Marco Sallustio, an analyst at ICBPI wrote in a note on Monday. “The whole banking industry will bear relevant extraordinary costs.”

Intesa Sanpaolo, Italy’s second-biggest bank, said it will book about €380 million of charges in the fourth quarter in addition to the contribution of €95 million already booked in the first half. UniCredit sees a further €210 million of charges, a bank official said.

Banks will probably be asked to pay a further €1.2 billion next year if funds raised from the reorganisation of the bailed out lenders, including the sale of assets, aren’t sufficient to bring down the total cost of the rescue, Sunday’s decree law shows.

“The additional one-off will hurt banks’ profitability, making it more challenging for some lenders to pay dividends,” said Fabrizio Bernardi, an analyst at Fidentiis Equities in Milan. “Charges for the year are quadrupled and for some lenders may mean to report a loss instead of a profit” for the quarter.

According to the resolution plan, the four banks will split their bad assets, including non-performing loans, into a separate unit, with shareholders and subordinated-debt holders incurring some losses. The plan rules out a bail-in, a mandatory resolution procedure from January, that would have hit senior bondholders.

Because the fund is still collecting contributions, Intesa Sanpaolo, UniCredit and Unione di Banche Italiane are providing a loan to be reimbursed within 18 months.

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 in senior notes, RBS estimates.

- Bloomberg