$1.9 billion legal threat hits Italy’s struggling Vicenza bank

MILAN / REUTERS

Banca Popolare di Vicenza faces legal claims of upto 1.65 billion euros ($1.9 billion) from clients who allege they were misled into buying its shares, potentially undermining a state-backed rescue of the loss-making bank.
Italy’s eighth-largest bank revealed the legal risks in a 950-page prospectus for its initial public offering, aimed at raising money to shore up its balance sheet.
The share sale has become a test of confidence in Italy’s banking sector, the fourth largest in the euro zone.
Italy is saddled with 360 billion euros in bad debts, a third of the euro zone’s total, and there had been fears that a failure of the Vicenza IPO would trigger a sector-wide crisis.
Vicenza’s share sale is underwritten by Italy’s new bank bailout fund, Atlante, created this month to boost confidence in the country’s banks. European Central Bank President Mario Draghi said the fund was a “small step” in the right direction.
Fabrizio Bernardi, an analyst at broker Fidentiis, said the Atlante bailout fund may end up with nearly 100 percent of the bank if, as expected, the issue fails to attract investors.
“We see little or no chances that this capital increase may be successful,” he said. “We see large room for risks; key problems may arise from lawsuits. We also believe Vicenza will need time to bring back its own credibility in order to regain the trust of its client base. The pain may not be over.”
But the legal claims facing Vicenza, based in the picturesque northern Italian city of the same name, threaten to eat into the 1.76 billion euros it plans to raise in its IPO.
The bank also said in the prospectus it had suffered deposit outflows in March and was heavily dependent on funding from other banks to keep its liquidity above regulatory requirements.
Many of Vicenza’s 119,000 shareholders are its depositors and borrowers who also bought its shares. Some allege in civil lawsuits the bank compelled them to buy shares as a condition for securing loans.
Vicenza has said it is fully cooperating with authorities investigating the complaints. A bank spokeswoman said it had already made an offer to discuss the claims with aggrieved clients.
The IPO, expected to be priced at around 10 euro cents per share, will effectively wipe out the savings of thousands of Italians, mostly from Vicenza’s home region where the 150-year-old co-operative bank was a byword for tradition and security.
Some of the bank’s clients bought its unlisted shares for as much as 62.5 euros each two years ago. Only a year ago, the bank sold shares at 48 euros apiece.
In its prospectus, Vicenza said it faced 647 million euros in claims for damages under law suits already with the courts, with another 1 billion euros in potential claims.
It said it had secured around 860 million euros in financing from JP Morgan and Deutsche Bank earlier this year to help restore its liquidity coverage ratio – a measure of a bank’s ability to ride out short-term cash outflows.
After a 23 percent drop in deposits last year, Vicenza said direct funding had stabilised in the first two months of the year, but fell by an unspecified amount in March.
UniCredit, Italy’s biggest bank by assets, had agreed to underwrite the Vicenza issue, but that role has passed to the Atlante fund, set up as a safety net for Vicenza and other banks struggling to raise the capital they need.
The fund, which has so far had pledges for 4 billion euros, is financed mainly by banks and insurers, but is also backed by state lender Cassa Depositi e Prestiti.
Popolare di Vicenza’s IPO will run from April 21-28. Twenty-five percent of the offer will be for retail investors, with the rest for institutional investors in Italy and abroad. The bank said earlier this week the pre-marketing phase was weak.