Italy winds up banks at cost of up to 17 billion euros

Italy began winding up two failed regional banks in a deal that could cost the state up to 17 billion euros ($19 billion) and will leave the lenders' 'good' assets in the hands of the nation's biggest retail bank, Intesa Sanpaolo. The government will pay 5.2 billion euros to Intesa, and give it guarantees of up 12 billion euros, so that it will take over the remains of Popolare di Vicenza and Veneto Banca, which collapsed after years of mismanagement and poor lending. Under the plan, the banks' soured loans, as well as legal risks stemming from a mis-selling scandal, will be moved to a bad bank, partly financed by the state. Junior bondholders and shareholders in the two banks will suffer losses, but senior bonds and depositors will be protected.

The European Central Bank, which supervises the two lenders based in the country's rich north-eastern Veneto region, had declared on Friday that they were "failing or likely to fail", setting in motion the process that led to them being wound down. EU rules could have imposed losses on senior bondholders and large depositors, a politically highly unpalatable prospect.