ECB 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 precautionary recapitalization at a meeting 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 Mediocanca SpA, in a note on April 4. Under EU bank-failure rules, solvency is the “first condition” for receiving state aid without imposing losses on senior bondholders, Equita Sim SpA’s analyst Matteo Ghilotti wrote in a report.
Veneto and Vicenza, both 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.
The ECB identified their capital needs based on the results of their stress tests and other assessments and has informed the Italian Treasury of its findings, the people said, asking to not be identified because the deliberations are private. Spokesmen for Veneto, Vicenza and the ECB declined to 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 over 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.
Earlier Monday, 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.
The two banks have already received almost 3.5 billion euros from Atlante, the state-orchestrated fund that bought the lenders last year. That includes 2.5 billion euros of emergency cash in June after investors balked at their initial public offerings. The fund injected an additional 938 million euros in January toward a future capital increase.
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 withing weeks.