ISP Intesa Sanpaolo Spa

MILAN—The Italian government has approved a €3.6 billion privately-funded rescue plan for four troubled small and midsize local banks, applying newly enacted European rules on the resolution of troubled lenders.

According to the plan approved on Sunday by Matteo Renzi's government, four good banks and one single bad bank will be carved out of lenders Cassa di risparmio di Ferrara SpA, Banca delle Marche SpA, Banca popolare dell'Etruria e del Lazio SC and Cassa di risparmio della Provincia di Chieti SpA.

Each of the four good banks will contain the healthy assets of the different banks, while one single bad bank will contain those banks' bad loans.

The plan comes at the end of a long period in which Italian authorities tried to set the four banks on a path to recovery, having replaced their management and having worked to recapitalize the institutions and make them more profitable.

The Italian government and the Bank of Italy are now using recently approved European rules to attempt to resolve the issues at the banks, which had been severely hit by mounting bad loans and lack the capital to absorb losses.

The Bank of Italy, who is overseeing the resolution of the four banks, said that the losses of the four lenders have already been partially absorbed by their shareholders and some of their bondholders, as requested by the Bank Recovery and Resolution Directive—the European law regulating the decision of the Italian government.

The good banks will be recapitalized by a fund financed by the country's lenders, the so-called Resolution Fund, to increase the four banks' capital to a level equal to 9% of their risk-weighted assets.

UniCredit SpA, Intesa Sanpaolo Spa and UBI Banca SpA will lend the Fund the initial capital it needs to be immediately operational, the Bank of Italy said.

These banks will all be chaired by Roberto Nicastro, a veteran Italian banker who has recently left UniCredit SpA, where he was general manager, and run by new managers appointed by the Bank of Italy.

These managers are tasked with selling the good banks to "the best bidders in a short time," the Bank of Italy said.

The bad bank will contain deteriorated loans of an overall nominal value of €8.5 billion, which have been written down to €1.5 billion. It will either sell them or work to collect at least part of them.

The Bank of Italy said the Resolution Fund will pay €1.7 billion to cover for the original losses of the four banks and that it will be able to recuperate only a small part of this money.

Then the Fund will hand out another €1.8 billion to recapitalize the good banks, which it could get back when the banks are sold, and €140 million to provide the bad bank with the necessary cash to function.

Giada Zampano contributed to this article

Write to Giovanni Legorano at giovanni.legorano@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 22, 2015 20:25 ET (01:25 GMT)

Intesa Sanpaolo (BIT:ISP)
Historical Stock Chart
From Mar 2024 to Apr 2024

Intesa Sanpaolo (BIT:ISP)
Historical Stock Chart
From Apr 2023 to Apr 2024