Top Italian banks say no to state aid

Italy's two largest banks, Unicredit and Intesa SanPaolo, backed out of a plan to sell bonds to the government, saying Tuesday that improving economic conditions made the proposed state aid unnecessary.

Unicredit said it plans instead a capital increase of up to ⁈ion ($5.82 billion) by issuing ordinary shares, while Intesa SanPaolo intends to issue hybrid bonds worth ⁈llion.

In March, the two banks had announced they would seek up to ⁈ion in state aid each, in the form of convertible bonds sold to the government, to shore up their core Tier 1 ratio _ a key measure of a bank's capital strength.

The Italian government has earmarked ⁈lion to ⁈lion in so-called Tremonti bonds, named after Finance Minister Giulio Tremonti, to help shore up Italian banks and encourage lending to the small and medium-size businesses that power the economy.

But Italian lenders have been slow to respond.

Banks typically try to keep the core Tier 1 ratio above 6 percent.

With the figure standing at 6.85 percent in June, Unicredit said in a statement Tuesday it had decided not to proceed with issuing securities to be subscribed by the Italian government and, under a similar scheme, by Austria's Finance Ministry.

The Italian lender's board also approved a ⁈ion capital increase for its Austrian unit.

Intesa SanPaolo said its core Tier 1 ratio stood at 6.9 percent in June and improving trends for the group, as well as the general economy, meant it no longer needed the high-interest Tremonti bonds, preferring to issue less costly securities.

"Banks which have taken state aid have being repaying it to a large extent," the lender said in a statement. "The market would have found it hard to understand why Intesa Sanpaolo has decided today to resort to state aid."

The banks announced their decision after the Milan stock exchange closed, but reports that they planned to refuse state aid were already widely circulated in the media. Unicredit shares closed up 2.06 percent at ⁈while Intesa SanPaolo was unchanged at ⁈