Italy says financial system solid as bank rescue furore grows

By Gavin Jones
Italy's Economy Minister Pier Carlo Padoan listens to a reporter's question during a news conference at the end of a cabinet meeting at Chigi Palace in Rome, Italy, October 15, 2015. REUTERS/Tony Gentile

By Gavin Jones

ROME (Reuters) - Economy Minister Pier Carlo Padoan said on Tuesday that Italy's financial system remained solid as the government faced a mounting furore over the rescue of four banks that wiped out the savings of thousands of retail investors.

Italy saved Banca Marche, Banca Etruria, CariChieti and CariFe at the end of November, drawing 3.6 billion euros (£2.6 billion) from a crisis fund financed by the country's healthy lenders.

Tougher European Union rules on bank rescues aimed at shielding taxpayers meant shareholders and holders of junior debt were hit, unleashing protests against the government.

"The government is doing everything in its powers to put the banks on the right path and to reinforce the banking system," Padoan said in a radio interview, adding that "the institutions and the system remain solid".

The government has "full confidence" in the Bank of Italy and market regulator Consob, he said.

Italian authorities came under fire after it emerged that many ordinary Italians had been sold risky subordinated bonds which, in case of bankruptcy, only get repaid after ordinary creditors have been reimbursed in full.

Around 10,000 clients of the four banks held some 329 million euros in such junior bonds, the Treasury said on Monday.

Padoan said he did not know if the government would be weakened by the affair which has hit bank bonds and shares.

Retail investors have rushed to sell junior bank bonds after one pensioner who lost his savings committed suicide.

Padoan gave his support to the Minister for Reforms Maria Elena Boschi, one of Italian Prime Minister Matteo Renzi's closest allies, who faces a no-confidence motion in parliament tabled by the anti-establishment 5-Star Movement, over an alleged conflict of interests.

Boschi's father was vice-president of Banca Etruria until the bank was put under special administration by the Bank of Italy this year and Boschi herself was a shareholder.

"I am sure that Boschi will come out of this extremely well," Padoan said.

But pressure on Boschi and the government continued to build on Monday, with Renato Brunetta, head of Prime Minister Silvio Berlusconi's Forza Italia faction in the lower house of parliament, announcing a no-confidence motion against the entire government over the bank rescue.

"Tomorrow the unified centre-right will present a no-confidence motion in both the Chamber and the Senate against the government," Brunetta told reporters.

Renzi commands a majority in both houses, though he has a narrower margin in the Senate, where some critics from his own party sometimes vote against him.

The political backlash for Renzi is particularly damaging because the four rescued banks mainly operate in central Italian regions that are traditional strongholds of his centre-left Democratic Party.

Roberto Nicastro, who was appointed the president of the four banks under the rescue, on Tuesday played down the extent of the problems for savers, saying that those in severe financial difficulty as a result of the banks' woes were only "about a thousand".

He appeared to be referring to a Treasury estimate that around a thousand clients of the banks had invested more than half of their financial wealth in junior bonds.

The government has said it would make available 100 million euros to help savers in most acute difficulty following the rescues.

(Additional reporting by Steve Scherer in Rome and Valentina Za in Milan; Editing by Andrew Heavens)