Italy`s 12 Bln Euros For Banks Fails To Impress

Italy finally came up with an offer of up to $15.5 billion in support for its banks on Friday but economists said details were too vague to really help -- and the amount is dwarfed by the funds on tap from other governments.

"This is just hot air ... we need more details but I'm afraid we won't find them even in the final text," said Andrea Resti, an economics professor at Milan's Bocconi University.

Economy Minister Giulio Tremonti said Italy could hand out 10-12 billion euros ($12.9-15.5 billion) by underwriting bonds for banks to boost their capital strength and smooth lending to business as part of a package to keep deep recession at bay.

Tremonti, speaking at a news conference on Friday after a cabinet meeting on the decree, said the yields on these bonds should ensure good returns for the state. He added any moves would be taken on a case-by-case basis.

Italy's package is the latest in a series of attempts by euro zone governments to try to support their wilting economies in the face of the global financial crisis.

Concrete measures for banks taken elsewhere, however, already surpass Italy's offer, with the United Kingdom paying 15 billion pounds ($23.1 billion) alone on Friday to take a 58 percent stake in Royal Bank of Scotland, the latest in a series of interventions.

Tremonti said Italy's debt mountain -- the third highest in the world -- meant Rome could not afford to pour more money into the economy. The government confirmed a previous target to bring the debt-to-GDP ratio below 100 percent in 2011.

"The message we want to send is one of confidence, for consumers and for workers," Tremonti said.

Italy's economy is in deep contraction, a trend which is expected to continue at least until the middle of next year.

The country's banks have maintained they have no need of government help and its two largest lenders, UniCredit and Intesa Sanpaolo, have taken their own measures to shore up finances and push key Core Tier 1 capital ratios higher.

However, they have also said that they will look at what is on offer from the government as some European rivals who have accepted state help now have Core Tier 1 ratios around 8 percent compared with 6-6.5 percent in Italy.

JP Morgan analysts estimate Italian banks could need 21 billion euros to bring Core Tier 1 ratios to 7.8 percent, according to a note published on Nov. 27.

Shares hardly blinked at Tremonti's announcement with Intesa Sanpaolo closing down 2.88 percent at 2.36 euros and UniCredit up 0.22 percent at 1.789 euros as the DJ Stoxx index of European banks edged 0.38 percent higher.

Sources close to the situation said banks preferred to await further details before taking any decision.

ALL TALK AGAIN?

"I'm sceptical on the bank measures ... either they will go together or no single bank will ever go on its own for fear the market will say that bank is in trouble," said Marco Valli, economist at UniCredit.

Tremonti gave few extra details to journalists but in the text of the new decree seen by Reuters, the Treasury suggested it could underwrite special convertible bonds by banks but would not get voting shares in the banks.

Underwriting the bond would be conditional on banks having a "coherent" dividend policy and adopting an ethical code regarding management's pay, the text said.

"There is a lot of discretionality," Resti, who is also director of financial research centre Carefin, said, adding that it was not clear why the bonds would count as core capital.

"This government is very good at communication, at advertising. They do a lot of press releases without having the details written already," he added.

The Treasury would use cuts in state spending to finance the bonds, the text said, along with new public debt issues.

Recent auctions by the Treasury, however, have not met strong demand given current financial market uncertainty.

The text added that any measures for supporting banks would be taken on a case-by-case basis.

The Italian government passed a first raft of measures to help the banking sector on Oct. 9 with a decree that gave the state the power to take non-voting stakes in banks.

The delay in taking these further measures stemmed from disagreements within the government and by the banks' reluctance to ask for help. Some fear the government measures would translate into political meddling in their business.