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Italy optimistic of EU backing for Popolare di Bari rescue plan

The Italian government is optimistic that the European Commission will give it the green light to rescue ailing Banca Popolare di Bari SCpA.

Pier Paolo Baretta, Italy's finance ministry undersecretary, told Bloomberg News that the government's dialogue with the EC is "constant and preventive."

"I don't see any particular complications, but instead a collaboration. If there are any observations, we will of course take account of them as always," Baretta reportedly said.

Italy's coalition government on Dec. 15 passed emergency measures to inject up to €900 million into state-owned Banca del Mezzogiorno - MedioCredito Centrale SpA which, along with deposit guarantee fund Fondo Interbancario di Tutela dei Depositi and potential investors, will take part in Popolare di Bari's restructuring.

The move follows the Italian central bank's Dec. 13 decision to place Popolare di Bari under administration after its management said it was in dire need of up to €1 billion in fresh capital to address loan losses.

Under the plan, Mediocredito will use €500 million of the capital injection to buy into Popolare di Bari's capital raising, with the remainder to be used for future requirements, a source earlier told Reuters. Italian banks will be asked to plug in the rest of the bailout through FITD.

Contribution key

Regional Affairs Minister Francesco Boccia told Radio 24 that the FITD contribution was a key component to meeting EU state aid rules, Reuters wrote.

Despite the government's optimism, the rescue plan may still come into conflict with EU rules on competition, Bloomberg noted.

A spokeswoman for the EC on competition matters said it is "in contact with Italy and stand ready to discuss with them on the availability and condition of the tools within the EU law framework," Bloomberg wrote.

Popolare di Bari, the biggest lender in the south of Italy, was saddled with mounting bad loans following Italy's worst postwar recession. It has been hit with losses while working on a plan to raise capital, mirroring the case of Banca Carige SpA, which recently received a rescue package financed by the FITD.

Italy has been seeking to set up a new lender that will help spur economic growth in the struggling southern region, and took Popolare di Bari's case as an opportunity to pursue that plan, Baretta told Bloomberg.

Meanwhile, the Banca D'Italia SpA said a liquidation of Popolare di Bari is not a feasible option, arguing that such a move would spark a confidence crisis among depositors of other small lenders, Reuters wrote in a separate report, citing a document on the central bank's website.

The regulator said a liquidation could only be considered if Popolare di Bari's assets and liabilities were divested to another bank but that it may be hard to find a buyer considering the weak situation of the bank and the southern region where it operates. In any case, a sale would be impossible without a considerable contribution from the state, similar to when Intesa Sanpaolo SpA acquired the good assets of two troubled Venetian banks, the central bank said.