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UPDATE 1-Veneto banks' bonds rise on hopes state bailout deal is close
April 4, 2017 / 10:52 AM / 7 months ago

UPDATE 1-Veneto banks' bonds rise on hopes state bailout deal is close

(Adds details, comments)

MILAN, April 4 (Reuters) - Popolare di Vicenza’s and Veneto Banca’s bonds rallied on Tuesday as investors bet the two troubled Italian regional banks would be granted the state aid they have requested to stay in business.

Following a meeting with Italian authorities on Monday, a European Commission spokesman said the EU executive was confident that a solution could be found in the coming weeks.

Italy wants to avoid having to liquidate the two banks because this would impose losses on their creditors and large depositors under European Union rules, which could hit confidence in the country’s frail banking system.

Italian sources familiar with the matter told Reuters on Monday that an accord over the state bailout request was within reach. The EU Commission must approve the banks’ restructuring plan to unlock state funds.

Separately, Bloomberg reported that the European Central Bank had deemed the two banks viable and set the capital shortfall they must fill at 6.4 billion euros ($6.8 billion).

A source close to the matter confirmed the figure, which is higher than an expected 5 billion euro capital gap.

A viability assessment is a prerequisite of a state rescue.

The two banks and the ECB declined to comment.

Italy has not managed to help out its troubled banks before the strict rules limiting state aid to lenders kicked in last year. These impose losses on bank’s creditors and large depositors before tapping public money in an effort to shield taxpayers.

Rome is trying to prop up its most vulnerable lenders under an exception to those rules as thousands of ordinary Italians hold domestic banks’ shares and bonds.

The bailout of the two banks, as well as that of bigger rival Monte dei Paschi di Siena, would use this exception to the EU rules to spare senior bondholders from losses.

By 1208 GMT a Popolare di Vicenza October 2018 bond yielded 20 percent down from 25 percent late on Monday. The yield on a Veneto Banca May 2019 bond fell to 14 percent from 18 percent.

The two banks’ senior bonds dropped sharply a week ago after Popolare di Vicenza reported a 1.9 billion euro 2016 loss and deposit outflows.

Veneto Banca on Monday reported a 1.5 billion euro loss for 2016 and said it had also lost deposits due to concerns over its rescue prospects. ($1 = 0.9383 euros) (Reporting by Elvira Pollina and Francesco Canepa; writing by Valentina Za. Editing by Jane Merriman)

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