Officials set to clear Italian bank rescue

Date: 02/10/1997

COMMISSION competition officials are on the verge of giving long-awaited clearance to the rescue of southern Italy's biggest bank, Banco di Napoli.

“There appear to be no problems,” claimed an Italian diplomat this week, while Commission officials said the dossier was “95&percent; decided”.

A decision would draw a line under a long investigation into the apparently incestuous nature of Italian plans to save the public bank by Banca Nazionale del Lavoro's (BNL) and the mainly privatised insurer INA.

Earlier this year, Competition Commissioner Karel van Miert demanded assurances from the Italian treasury, the biggest shareholder in BNL, that it could bear the burden of saving Banco di Napoli without creating problems for itself which might require a bigger state bail-out in the long term. Among the concerns highlighted by Van Miert was BNL's low level of profitability.

But the participation of the profitable and well-regarded INA in the rescue has apparently given the deal enough credibility to convince the European Commission.

The latest six-monthly results, which showed Banco di Napoli returning to profit, will also help to dampen possible protests from private banks over yet another bail-out in the banking sector.

Southern Italy's largest bank all but collapsed over two years ago after losing 1.6 billion ecu in 1995. The Italian government pumped 1 billion ecu into the bank to keep it afloat while it arranged a long-term rescue.

BNL (Italy's fifth-biggest bank in terms of own funds) and INA won an auction to buy a 60&percent; stake in Banco di Napoli. They intend to relaunch it as part of BNL with around 670 million ecu in fresh funds.

The two companies are also considering a wider marriage to form Italy's biggest bank-insurance group and have already committed themselves to a modest exchange of assets, with BNL swapping its insurance arm BNL Vita for INA's small bank, INABanca.

For BNL, the Banco di Napoli take-over will give it a regional stronghold for the first time. Unlike most of its rivals, BNL has until now had only a thinly spread national network. The eventual marriage of the two companies will create one of Italy's most formidable bank-insurance companies, with 1,400 branches in the country.

Italy's small private banking sector has taken a low profile over the BNL case, with some pointing to INA's participation in the deal as security that it will not turn sour.

For many analysts, the agreement marks a further step towards the much-needed restructuring of Italy's relatively backward banking sector, in which a large proportion of banks are in public hands with a heavy central, regional or local government presence.

Most Italian banks are judged to be in poor shape to compete in the Europe-wide environment to which they will be increasingly exposed if Italy achieves its ambition of becoming one of the first members of the single currency zone.