Up to 3,900 voluntary redundancies and 600 branch closures are on the cards as the Italian government winds up two insolvent Venetian banks to avert a possible threat to the country's banking system, it was announced on Monday (Jun 26).
The decree split the two lenders' assets into "good" and "bad" banks.
The government made a deal with Italy's biggest and best-capitalized retail bank, Intesa Sanpaolo, to take over the failing banks' remaining assets, and agreed to provide further "guarantees" of up to €12 billion.
Italy's government is bailing out two banks in the Venice region at a cost of 5.2bn euros (£4.6bn; $5.8bn).
Shares rose in Europe on Monday, with Italian banks gaining after a deal to wind up two failed regional lenders, while the dollar and USA bond yields held close to recent lows as subdued inflation raised questions over the outlook for monetary policy.
So the two banks will be closed down under national insolvency procedures, and the painful process of European Union bail-in - under which junior and senior bondholders absorb the losses - is averted.
Setting tough conditions for the deal, Intesa CEO Carlo Messina has insisted that his bank's capital ratios and dividend policy would not be affected by the transaction.More news: 15 taken off missing list in China landslide
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Doing the insolvency under local Italian law means holders of more secure, or senior, bonds won't lose money, nor will depositors - even those with funds over the limit.
The decision follows a similar ruling on Spain's Banco Popular Espanol SA earlier this month, the first time the ECB exercised its new powers to blow the whistle on a failing bank.
The banks' assets would be split into "good" and "bad".
Sunday's rescue is the latest twist in the drive to fix the Italian banking system, which is saddled with bad loans worth about 350bn euros - a third of the eurozone's total bad debt.
Both have been struggling with loans that aren't being repaid, and have already burned up 3.5 billion euros in new capital invested by a fund backed by other Italian banks. Also at risk are bank employees' jobs.
The dragged-out negotiations between Rome, Frankfurt and Brussels and their outcome on Sunday have raised serious questions about the effectiveness of banking supervision and the credibility of Europe's own rules for dealing with bank crises.