The ECB has greenlit the liquidation of Veneto Banca and Banca Popolare di Vicenza

• UPDATE The liquidation of Veneto Banca and Banca Popolare di Vicenza can cost 17 billion Euros

The italian government will pay to Intesa Sanpaolo 5.2 billion Euros in order to acquire the good assets of Veneto Banca and Banca Popolare di Vicenza, Reuters announced, Sunday night, after the authorities in Rome have spent their entire weekend drafting an emergency ordinance concerning the procedure for the liquidation of the two banks.

Economy minister Pier Carlo Padoan said that the total funds that may be mobilized by the state can reach 17 billion Euros, three times more than the initial estimate concerning public funds which will have to be spent on recapitalizing the banks.

Pier Carlo Padoan said: "Those who criticize us should tell us what alternative we had. I see none".

The Government's emergency ordinance means that the subsidiaries of the two banks and their employees will be part of Intesa Sanpaolo, starting Monday night, a move meant to prevent a massive withdrawal of deposits, which would have led to chaos across the entire banking system.

The ordinance must be voted by the Parliament within 60 days.

The non-performing assets will be transferred to a "bad" bank, which will be financed partially by the state.

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The European Central Bank has greenlit the liquidation of Veneto Banca and Banca Popolare di Vicenza, after they have repeatedly violated the "they have repeatedly violated the capitalization requirements", according to a press release sent on Friday to the European institution.

The ECB showed that the two European banks "are at risk of collapsing", and the Single Resolution Board (SRB) said that "the conditions for the resolution of the two banks have not been met", and "banks will be liquidated according to the Italian bankruptcy procedures".

The situation of Veneto and of Banca Popolare di Vicenza has been watched closely by the ECB since 2014, when significant capital deficits were uncovered.

Veneto Banca is also present in Romania, but as a subsidiary, therefore these deposits are not guaranteed by the Romanian guarantee scheme, but by the Italian one.

Adrian Vasilescu, strategy consultant with the National Bank of Romania (NBR), told us: "Veneto Banca România is a subsidiary and is under the jurisdiction of the European passport, not of the NBR". According to him, the deposits in that subsidiary are very few and overall insignificant. Mr. Vasilescu explained that the deposits of Veneto Banca România will move to a new bank, if a transaction is made, or will be automatically transferred to the Italian Guarantee Fund.

According to him, the deposits are not in danger. Adrian Vasilescu explained: "The deposits can stay with the bank and transferred by the Guarantee Fund to another European bank or can be withdrawn following a request made by depositors with the fund in question".

The financial position of the two Italian banks deteriorated heavily in 2017, despite combined investments of 3.5 billion Euros made by the Atlante fund in 2016.

According to information from the press, Intesa Sanpaolo, the second largest bank in Italy, is negotiating with the authorities in Rome the acquisition of the good assets of the two banks, and its terms are very strict.

Sources quoted by Reuters said that Intesa is willing to pay only one Euro for the two banks.

Also, Intesa said that it should not be required to increase the capital or to reduce dividends.

The assets it takes over should not exclude only the non-performing loans but also those that may become non-performing. Intesa also wants to be protected against any legal risks, amid the "removal" from the balance sheets of the existing shareholders and of the owners of subordinated bonds, the Wall Street writes.

A group of four international investment funds offered to inject 1.6 billion Euros in the two banks, at the end of May, according to sources quoted by Reuters. Companies Sound Point Capital, Cerberus, Attestor and Varde sent an offer for the rescue of Banca Popolare di Vicenza and Veneto Banca, on May 30.

The offer was not taken into consideration by the Italian authorities.

Under these circumstances, the Italian government had scheduled to make a decision on the procedures for the liquidation of the two banks yesterday, but by the time the newspaper had gone to the printers, no information on any document passed by the government had emerged.

The authorities were expected to take measures to avoid losses by the owners of current accounts, owners of the deposits and higher rank creditors, according to an article in the Il Sole 24 Ore newspaper.

According to the press, the creation of a "bad bank", which would take over the non-performing assets of the two banks, estimated at approximately 20 billion Euros, in a cumulated balance sheet of approximately 60 billion.

The European Oversight Authority has repeatedly asked the two banks to send it plans for recapitalization and restructuring of their activity. "Both banks presented business plans that have been considered to be lacking in credibility", the European Central Bank said.

Just a few months ago, Pier Carlo Padoan, the minister of the economy said that the two banks will not be shut down.