* Public money cannot cover foreseeable or incurred losses
* The Veneto banks expect to book fresh loan writedowns
* Other banks may have to step in if private capital needed
MILAN, May 17 Italian regional lenders Popolare
di Vicenza and Veneto Banca may need to raise capital privately
to cover loan losses to win European Union approval for a state
bailout they have requested, six sources familiar with the
matter said on Wednesday.
The two banks, together with fellow bailout candidate Monte
dei Paschi di Siena, are stuck in rescue talks with
European authorities that are keen to limit the amount of
taxpayer money used to help ailing lenders in accordance with
new EU rules on banking crises.
But having failed to raise funds on the market last year,
the two Veneto-based banks may have no alternative to turning to
healthier rivals for help once again, five of the sources said,
in a fresh drag on Italy's weakened banking industry.
Both Popolare di Vicenza and the European Commission said
negotiations were ongoing. Popolare di Vicenza, whose CEO
Fabrizio Viola is leading talks with European authorities, said
the bank would not comment on rumours and added discussions
focused on targets set under a restructuring plan that envisages
a merger between the two banks.
The two banks were rescued from bankruptcy a year ago by
bank support fund Atlante, which took up 2.5 billion euros in
initial share issues that were spurned by investors. It later
pumped another 938 million euros into the two banks.
State-sponsored Atlante was financed by Italian banks and
insurers, which have since been forced to write down the value
of their stakes.
The two Veneto banks must fill a 6.4 billion euro capital
shortfall after loan writedowns led to a combined 2016 loss of
3.4 billion euros and pushed their capital below minimum
EU rules allow a state to step in to cover losses that a
lender could potentially suffer under a shock scenario, but not
losses that are foreseeable or have already been incurred.
The two banks have warned they are likely to book further
loan losses this year as they apply guidelines provided by the
European Central Bank, with a potentially significant impact on
capital and earnings.
The sources said the prospect of fresh loan writedowns,
which could not be covered with public money, was likely to
force the two banks to raise capital privately first.
The rescue scheme under discussion entails a private
contribution through the conversion of around 1 billion euros in
junior debt into equity. The 938 million euros paid by Atlante
should also count as private capital.
If more money from private investors is needed, there may be
no alternative to other Italian banks chipping in to avoid
failures that might destabilise the whole industry, five of the
In this case, banks would need to pay fresh funds into
Italy's deposit-guarantee fund. To avoid breaching EU state aid
rules, the fund has set up a separate, voluntary scheme which
has already been used to rescue two small lenders in the past
The fund's Director General Giuseppe Boccuzzi told Reuters
on Wednesday that to date he was not aware of any such
($1 = 0.9007 euros)
(Reporting by Stefano Bernabei, Paola Arosio, Valentina Za,
Andrea Mandala, Writing by Valentina Za; Editing by Mark Potter)