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Italy Saves Major Bank With €5.4Bn Taxpayer Funded Bailout

The Italian government has received approval from the European Commission(EC) to save yet another bank. A bailout package worth €5.4 billion will be used to salvage Banca Monte Dei Paschi di Siena SpA on the condition that the bank will restructure its framework in a major way.

The bailout will help settle a major concern area for both the EC and the Italian government as the bank’s troubles had the potential to upset the economy. Italy has so far poured in around €22 billion ($25.4 billion) by way of taxpayers’money to save the country’s struggling banking industry. This is despite accepting the EU clause of not using taxpayer money to do so.

Two regional banks Banca Popolare di Vicenza SpA and Veneto Banca SpA were recently declared insolvent, but the state will be on the hook for around €17 billion ($19 billion) to support their winding up. It will pay €5.2 billion to Intesa Sanpaolo, the country’s largest retail bank to take over their assets and is further offering a guarantee of up to €12 billion euros.

According to industry experts, these settlements present the country’s beleaguered banking industry with an opportunity to reboot itself.

In a statement Federico Ghizzoni, the former chief executive officer of UniCreditSpA a leading Italian lending firm said

These agreements mark a turning point for the whole Italian banking industry. The worst is over. Italian banks have managed to muddle through and hit the reset button.

Jacopo Ceccatelli, CEO of Marzotto SIM SpA, a Milan-based broker-dealer observed that while the bailouts might not be considered advisable from a regulatory angle, they are positive for the industry as they are removing system risks that are present in the industry.

Monte Paschi has announced a five-year restructuring plan that it says will yield a net profit of around €1.2 billion and over 10 percent of return on equity by 2021. The bank will be slashing its headcount by nearly 5,500 and close nearly 600 of its branches. It has also committed to eliminating bad loans worth €28.6 billion from its books by 2021.

Genoa-based Banca CarigeSpA is the only bank left that is considered somewhat vulnerable but it is a major concern to industry experts.

Analysts are however warning that unless lawmakers and the industry take steps to address the industry’s structural flaws, the current growth optimism might not sustain. The country had nearly €313 billion tied up in doubtful loans towards the end of 2016, which is about 15 percent of the total outstanding debt.

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