• Rescue to take place after bail-in rules come into effect
  • Transaction subject to approval of Italy, European authorities

Italy’s bank-sponsored deposit guarantee fund will lead the rescue of Banca delle Marche SpA, the Italian regional lender that’s under central bank administration, by backing a planned capital increase and becoming the controlling shareholder.

The rescue will take place after the country’s new bail-in rules come into effect, the fund said in an e-mailed statement on Thursday. The transaction is subject to the approval of Italian and European regulators, including the European Central Bank.

“The key thing would be that the recapitalization will take place after the country’s new bail-in rules come into effect,” said John Raymond, credit analyst for southern European banks at CreditSights in London. “It gives them the possibility of bailing in the subordinated and senior debt. It may become something of a race between Italy and Greece for the first example of a senior bail-in.”

Take Pain

The European Union’s Bank Recovery and Resolution Directive, which comes into force in January, aims to ensure stakeholders rather than taxpayers take the pain of resolving a failing bank. This includes holders of senior bonds, a class of security that was largely unscathed during the financial crisis, whose claims can be impaired while the bank is recapitalized or wound up. 

The way that Italy transposed the directive into its legal framework makes depositors senior to bondholders if losses have to be inflicted in a resolution. Under existing legislation, depositors and bondholders have the same rank and losses would be shared.

Banca Marche has 736 million euros ($830 million) of junior and senior unsecured bonds outstanding, 121 million euros of which mature before January 1, according to data compiled by Bloomberg. Two subordinated notes with a total face value of 300 million euros maturing in June 2016 and June 2017 have been quoted over the last month at between 15 and 30 cents on the euro, the data show.

Banca Marche, run by administrators appointed by the Bank of Italy since a capital shortfall emerged in 2013, was seeking new investors and a partner to bolster capital while selling assets. Commissioners at the bank, based in Jesi, central Italy, have until the end of October when their mandate expires, to finalize the plan, people with knowledge of the discussions have said.

Since it was created in 1987, the deposit guarantee fund has helped rescue 12 banks. Last year it injected 265 million euros into Banca Tercas to cover its capital deficit, and gave guarantees for some bank’s fiscal and credit risks.

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