ECB Said to See Italy's Vicenza, Veneto Banks as Solvent

(Bloomberg) -- The European Central Bank estimates Banca Popolare di Vicenza SpA and Veneto Banca SpA need about 6.4 billion euros ($6.8 billion) and considers the lenders solvent, a condition for them to receive a bailout, according to people familiar with the matter.

Representatives of the ECB, the European Commission and the Italian Treasury reviewed the banks’ request for a so-called precautionary recapitalization at a meeting Monday in Brussels. The discussions focused on the compatibility of the proposal with European Union rules on state aid, an Italian official said.

“The finding of solvency is key,” said Riccardo Rovere, an analyst at Mediobanca SpA, in a note on April 4. Under EU rules, solvency is the “first condition” for receiving state aid without imposing losses on senior bondholders, Equita Sim SpA analyst Matteo Ghilotti wrote in a report.

Veneto and Vicenza, both unlisted banks based in Italy’s northeast, are requesting the capital injection as part of a merger plan. Earlier this year, the two banks submitted a proposal to the ECB that said they needed about 4.5 billion euros, people familiar with the matter have said.

Bonds Jump

At Monday’s meeting, the ECB informed the Italian Treasury that it estimates the banks need about 6.4 billion euros based on the results of assessments including stress tests, the people said, asking to not be identified because the deliberations are private. Spokesmen for Veneto, Vicenza and the ECB declined to comment. A spokesman for the Italian Treasury wasn’t immediately available for a comment.

Pop. Vicenza’s 750 million euros of senior bonds due in March 2020 rose six cents to 78 cents on the euro on Tuesday, the biggest jump in more than a year, according to data compiled by Bloomberg. The bank’s 200 million euros of junior bonds due in September 2025 were little changed at 15 cents on the euro, a record low, according to Bloomberg data.

The two banks have already received almost 3.5 billion euros from Atlante, the state-orchestrated fund that bought them last year. That includes 2.5 billion euros of emergency cash in June after investors balked at their initial public offerings. The fund injected another 938 million euros in January toward a future capital increase.
 
Veneto posted a 1.5 billion-euro loss for 2016, saying its deposits dropped last year and that it needs a capital increase to keep operating.

Solvency is one of a number of conditions for determining eligibility for state aid. Constructive talks are ongoing, a European Commission spokesman said, adding he is confident a solution can be found within weeks.

In another step toward their merger, Pop. Veneto and Vicenza are seeking to reduce litigation risks from retail shareholders who have suffered losses on their investments.
The banks say about 70 percent of their shareholders have agreed to a compensation deal designed to shield the combined company from future lawsuits, below the 80 percent requirement set earlier this year. Next week, the boards of Veneto and Vicenza may approve a proposal that would soften the 80 percent target to help complete the deal, people with knowledge of the matter have said.

--With assistance from Tommaso Ebhardt Francesca Cinelli and Tom Beardsworth

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net, Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net.

To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net, Cindy Roberts, Dale Crofts