Italy's government approved a capital injection, up to $992 million, to rescue the ailing cooperative bank Popolare di Bari on Sunday.
Italy's government approved late on Sunday an emergency decree granting a lifeline of up to $992 million to cooperative bank Popolare di Bari, in the latest state bailout of an ailing lender.
The bank, which said last week it needed an urgent injection of up to $1.1 billion, has struggled to cope with mounting loan losses during a slump that has devastated Italy's economy, notably in Popolare di Bari's home region in the south.
It was placed under special administration by the Bank of Italy on Friday but the government led by Prime Minister Giuseppe Conte failed to approve a rescue package on the same day as several ministers boycotted a hastily convened cabinet meeting.
A new cabinet meeting was held on Sunday evening and approved a capital injection for the bank, the biggest lender in Italy's underdeveloped Mezzogiorno. The government decree aims to create a state-owned "bank for investments" in the south.
"The government is on the side of the savers and employees of Popolare di Bari and is committed to re-launching it for the good of the economy of the south," Economy Minister Roberto Gualtieri said.
The government plan calls for an injection of up to 900 million euros into state-owned Banca del Mezzogiorno-Mediocredito Centrale so that it can finance a capital increase at Popolare di Bari. Of these funds, 500 million would be used to quickly bolster the financial strength of Popolare di Bari and the rest would be set aside in case of future requirements, a source close to the matter said.
The government wants a deposit guarantee fund financed by Italian banks to take part in the rescue by providing as much as 500 million euros.
The Interbank Deposit Protection Fund (FITD), whose executives are due to meet this week, said this month it had been asked for help by Popolare di Bari but wanted to examine the bank's business plan before making a decision.
The crisis at Popolare di Bari has heaped pressure on Conte's fractious coalition, which brings together the anti-establishment 5-Star Movement and the centre-left Democratic Party.
Only hours before the cabinet meeting on Friday night, Conte said the banking system was in good health and there would be no need for state bailouts, prompting the right-wing opposition League party to call on him to resign.
5-Star leader Luigi Di Maio said on Saturday he wanted to know why the bank's health had been allowed by the Bank of Italy, the sector supervisor, to deteriorate so badly and which bank managers were responsible for its pile of bad loans.
Since 2016, Italy has had to rescue several of its banks, including Monte dei Paschi di Siena and two Veneto lenders, rescues slammed by 5-Star - which at the time was in opposition - as a waste of taxpayer money to help fat-cat bankers.
With 5 Star and the PD at odds over a growing list of economic issues, from the fate of airline Alitalia to the troubled Ilva steel plant in the south, Popolare di Bari's woes could have potentially serious implications for the government.
Like thousands of Italians who invested savings in the shares and bonds of local banks, Popolare di Bari's 69,000 shareholders stand to lose their money in a rescue.