May 30, 2016 / 4:16 PM / 4 years ago

UPDATE 1-Italy's bank bailout fund to backstop Veneto Banca cash call-sources

* Atlante acted as backstop to Popolare Vicenza cash call

* Fund risks having bulk of its cash tied to two weak banks

* Fund’s mission includes helping banks’ offload bad debts (Adds details)

MILAN, May 30 (Reuters) - Italy’s bank bailout fund is set to backstop another cash call at a troubled regional lender, running the risk of using the bulk of its war chest to rescue two weak banks.

The 4.25 billion euro ($4.7 billion) Atlante fund, financed by a group of mostly private financial institutions, was hastily set up last month to act as an investor of last resort for banks struggling to raise cash on the market.

In the space of a few weeks it had to acquire a 99 stake in mid-tier lender Banca Popolare di Vicenza after investors spurned its 1.5 billion euro initial public offering.

It is now expected to backstop a 1 billion euro share issue at fellow regional bank Veneto Banca after very weak demand from institutional investors in the run-up to the launch of the offer, three sources close to the matter said on Monday.

The sources said the fund would sign a sub-underwriting agreement by Tuesday to relieve a consortium of banks led by Intesa Sanpaolo’s investment bank unit Banca IMI of its underwriting commitment.

“According to the latest indications, there is almost zero interest from the market,” one of the sources said. “It’s the same situation that occurred with (Popolare) Vicenza.”

Veneto Banca’s board was meeting on Monday to decide the price of the share sale - aimed at plugging a capital gap identified by the European Central Bank. The pre-marketing phase ends on Monday.

The cash call is likely to be priced at just 0.10 euros per share, a small fraction of the value the bank set for its stock just a year ago, a source with direct knowledge of the matter said on Friday.

The government-brokered Atlante fund is also supposed to use at least 30 percent of its fire power to help Italian banks offload bad loans and clean up their balance sheet, but risks having little money left for that task.

Italian banks are saddled with 360 billion euros of soured debts that built up during a painful recession. These eat into their capital by forcing them to set aside money to cover for potential losses.

Part of the Atlante fund’s mission is to purchase non-performing loans repackaged as debt securities - focusing on the riskiest ‘junior’ portions - and help reduce the gap between the book value of the loans and the price investors in distressed securities are prepared to pay. ($1 = 0.8978 euros) ($1 = 0.8981 euros) (Reporting by Paola Arosio, Maria Pia Quaglia, Valentina Za, writing by Silvia Aloisi,)

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