An Italian-style Bailout

It’s been a long, hard journey for those attempting to fix Italy’s bad banking debts while keeping with EU rules, but we finally have it. Of course, the result might not be ideal. In fact, it’s the kind of bailout that goes against everything banking union rules attempt to prevent: Nationalizing losses and privatizing gains.

So, what exactly happened? Italy agreed to pay roughly 17 billion euros in state guarantees and cash to wind down two major, failing banks – Veneto Banca SpA and Banca Popolare di Vicenza SpA – while protecting depositors and senior creditors. The solution? Intesa Sanpaolo Spa, the largest bank in Italy, will take on the lenders’ good assets for the price of one euro.

For now, everyone seems pleased, but there are long-term costs.

Intesa shares increased 3.8% yesterday, which is hardly surprising considering the bank just paid a single euro for 900 new Italian branches, 26 billion euros worth of performing loans and deposits and billions of euros in public financial assistance. Not a bad deal, wouldn’t you say?

It’s certainly a seemingly ‘better deal’ that the one reaches last week in Spain, when regulators decided Banco Popular Espanol SA would wind down – but with imposed losses for the private-sector. Banco Santander SA bought the failing bank, stating it would raise 7 billion euros to compensate for possible losses.

ECB officials said that allowing the banks to simply fail would cost more than the payment made by the government, but if the Italian economy faces difficulties anytime soon, 17 billion might become a heavy cost. And what does it mean for the EU? For starter, the next time a eurozone bank fails, investors will know that there isn’t one rule regulatory for all.

Banks are an essential part of modern economy, and their failure or success could have a substantial impact on global markets. At iFOREX you can trade the share CFDs of many leading banks including Intesa Sanpaolo Spa, Deutsche Bank, Citigroup, JPMorgan Chase, Wells Fargo, Mitsubishi UFJ and many others. Drop by our platform and see what’s happening in the market right now.




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