Banking bail-out looks set to win approval

Date: 06/02/1997

By Tim Jones

COMPETITION Commissioner Karel van Miert is poised to approve Europe's largest banking bail-out since the rescue of Crédit Lyonnais two years ago.

Officials in the Directorate-General for competition (DGIV) are still assessing the detailed terms of the approval, but the European Commission is likely to allow the Italian treasury to inject an extra 1 billion ecu in capital to the ailing Banco di Napoli (BN) within a few weeks.

Southern Italy's largest bank all but collapsed after losing 1.6 billion ecu in 1995. To avoid bankruptcy, the Italian treasury pumped 1 billion ecu into the bank early last year.

“Without the aid in question, the bank would probably have been wound up or sold to another more solid financial institution,” said the Commission when it wrote to the Italian government in November requesting more information about the subsidy.

In order to win approval for the deal and keep its contribution to the bail-out as low as possible, the treasury promised to put together a banking consortium to find another 750 million ecu for Banco di Napoli and to carry out asset sales.

Last summer, BN sold 50 of its 77 branches in northern Italy to the Banca Popolare di Brescia for 150 million ecu. But private banks, wary of getting involved in a venture which lost a further 350 million ecu in 1996, were not keen to join the treasury-led consortium.

Instead, Treasury Minister Carlo Azeglio Ciampi was forced to issue a public notice for offers to buy a 60&percent; stake in BN - a procedure which raised eyebrows within DGIV.

To underwrite the offers, the treasury felt it had to guarantee payment of the 1-billion-ecu state aid, but this had still to be approved. Secondly, only two offers were made for the shareholding and these were from institutions mostly owned by the state.

Ciampi had hoped to interest European banks keen to establish a foothold in southern Italian retail banking, but it was not to be. He was placed instead in the awkward position of having to choose between two of the treasury's own banks, and then convincing DGIV that no extra surreptitious state aid had been paid.

In the end, the treasury had to 'encourage' state-owned Banca Nazionale del Lavoro (BNL) and recently part-privatised insurance company INA to make a bid for BN worth 30 million ecu.

After scrutinising the terms of the bidding, Van Miert was satisfied that the competition had been fair and genuine. But DGIV investigators are still looking into whether the restructuring plans for the bank submitted by the treasury are tough enough to return BN to long-term viability.

They are focusing on the restructuring of credit management, investment and risk-control services as well as measures to cut staff numbers and rationalise BN's branches. They are also assessing the exact terms of the subsidies paid last year, including a loan made by Cassa Depositi e Prestiti and other public banks and advances to BN from the Bank of Italy to offset losses, including the return of a 760-million-ecu obligatory reserve.

Officials say that Van Miert will make approval of the state aid dependent on conditions similar to those imposed on Crédit Lyonnais in 1995. Then, in return for nearly 7 billion ecu of aid, Lyonnais had to sell 35&percent; of its assets within three years - including some of its 'crown jewel' European retail banking network - and help to finance the debt write-off itself with a loan made to the treasury at below-market rates.

DGIV is hopeful that the presence of the private sector INA among the bank's new shareholders will ensure the parties stick to the terms of the restructuring programme.

BNL and INA will be aiming to bring an end to the history of poor risk-management at BN. Only when many of these aims are achieved will Ciampi be able to fulfil his wish to sell the remaining 40&percent; of the bank.