The move comes barely more than a week after Italy again received support from the European Commission for its pledge of a state guarantee of up to 17 billion euros as part of a plan to dismantle two troubled Venetian banks.
The use of taxpayer money to resolve problems within the banking system and therein protect retail bondholders in all three banks has been highly controversial given it flies in the face of the European Commission’s commitment to avoid bailouts and all of the recent legislation that it has passed geared towards that purpose.
The banking sector has been struggling for years under the weight of a mountain of bad debt, and defenders of the state aid say the government’s and the Commission’s broader aim of lowering systemic risk validates the decision.
Additionally, the goal of shoring up the wider Italian financial system is now making progress, according to analysts at Citi.
“The stock of NPLs in Italian banks’ balance sheets is significant but, given recent system developments, it is expected to show a large decrease before year-end,” said Azzurra Guelfi, banking analyst at Citi in a note on Wednesday morning.
Furthermore, having bought into the new equity at a discount, the state could even stand to benefit from the BMPS transaction, says Gildas Surry, senior analyst at Axiom Alternative Investments.
“Over the next five years, definitely the state has a case where potentially it could get a good return on its investment,” Surry told CNBC on Wednesday.
Indeed, there could also be an opportunity for brave investors, suggests Surry, if Italy follows the path trodden by Spain which has seen its banking sector shrink from around 70 lenders to closer to a dozen since the financial crisis.
“Potentially BMPS is a consolidation play because ultimately the bank will be clean and definitely there is consolidation to take place in Italy from the 400-plus institutions down to probably 150,” he offered.