The European Commission on Friday approved amendments to the Italian financial bailout plan which will give banks another option for remunerating bonds.

The European Union (EU)'s antitrust watchdog said the modified scheme is consistent with its guidance on support measures for banks during the financial crisis.

"The Italian authorities have asked permission to modify the design of their scheme to make it more attractive to sound banks that are willing to use the state capital only for a very short period of time," EU Competition Commissioner Neelie Kroes.

"The modified scheme ensures an adequate remuneration for the state and encourages early exit. It is in line with EU rules," she added.

An original plan approved by the commission on December 23, 2008 enables Italy to subscribe subordinated debt instruments, qualifying as bank core tier 1 capital. Only fundamentally sound banks are eligible for such recapitalization.

Remuneration conditions include an initial coupon with fixed step-up clauses, increases in remuneration linked to dividend payments and to the financing cost of the Italian state as well as a redemption price premium increasing over time.

The main modification to the previous scheme is the introduction of an alternative remuneration option with a higher initial coupon and a higher annual level of the coupon until 2014 in exchange of a lower reimbursement price fixed at the nominal value until June 2013.

In addition, the possibility for the state to take part in recapitalizations if there is a participation of at least 30 percent of private investors and on equal terms with the latter has been introduced.

(Xinhua News Agency February 21, 2009)