Italy Banks Said in Talks With Authorities on Veneto Lenders Aid

(Bloomberg) -- Italy’s banks are considering a request by the nation’s government to contribute about 1.2 billion euros ($1.4 billion) to the state-backed rescue of two troubled regional lenders in order to avoid a costly resolution, according to people with knowledge of the matter.

The Finance Ministry has intensified contacts with lenders including UniCredit SpA and Intesa Sanpaolo SpA -- the country’s biggest -- after the European Commission, the body that approves state aid, refused to lower the amount of private funding required for the rescue of Banca Popolare di Vicenza SpA and Veneto Banca SpA, said the people, who asked to not be named because the discussions are private.

UniCredit Chief Executive Officer Jean Pierre Mustier is leading talks with European authorities and the Italian Treasury for the banks’ possible contribution, one of the people said. Lenders are open to making payments, proportionate to their own size, because the costs of a failure would be much higher, according to the people. The cost of refunding small depositors and other eligible creditors is estimated at about 11 billion euros, they said.

The discussions are expected to intensify in the next few days, with a decision expected to be taken before June 21, when a 150 million-euro junior bond of Veneto Banca expires, the people said.

Investor attention is turning to Italy’s troubled lenders after Spain’s Banco Santander SA rescued Banco Popular Espanol SA in a deal brokered by European regulators this week. The northern Italian banks, which ultimately want to merge, are seeking approval for a 6.4-billion-euro so-called precautionary recapitalization that wouldn’t trigger post-crisis rules requiring a wind-down.

Dubious Bet

“We view negatively the possible injection of further capital by each Italian bank, as a precautionary recapitalization by Italy in a second stage would likely largely affect the value of the investment,” Riccardo Rovere, an analyst at Mediobanca SpA, wrote in a note Thursday. Yet a further intervention could put to bed market concerns that the two Venetian banks represent a risk to the Italian banking system, he said.

Representatives of UniCredit and Intesa declined to comment, as did a spokesman for the Italian Treasury.

Veneto Banca’s 500 million euros of senior notes due in May 2019 rose 6 cents on the euro to 79 cents on Thursday, according to data compiled by Bloomberg.

In Spain, Santander plans to raise about 7 billion euros through a rights offer to clean up Popular, a bank buckling from bad loans and other failed property assets. Stock and bondholders in Popular will foot losses of about 3.3 billion euros after regulators -- saying that the bank was failing -- sought a rescue that would avoid taxpayer funding.

Italy has failed to find local investors and private equity funds willing to provide fresh money for the two unlisted banks, people with knowledge of the matter have said. As an option, the Treasury has sounded out representatives of the European Commission about whether the lenders may sell bonds to raise capital and reduce the private funding demanded.

In recent months UniCredit and Intesa have ruled out any additional intervention to rescue troubled lenders in the country, having already contributed to the nation’s deposit-guarantee fund for banks in resolution and to the state-arranged Atlante fund. That private-equity vehicle has already pumped almost 3.5 billion euros into Veneto Banca and Pop. Vicenza.

--With assistance from Dan Liefgreen and Chiara Remondini

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net, Lorenzo Totaro in Rome at ltotaro@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Dan Liefgreen, Keith Campbell