Selling shares in an Italian bank today, as one fund manager put it to Gadfly, is like selling black shoes in spring time -- a tough exercise.
Carlo Messina, CEO of one of the banks overseeing the IPO of Veneto Banca, a troubled Italian lender struggling to meet European Central Bank requests to boost capital, has given his own grim assessment of the task ahead.
In an interview with Bloomberg Television last week, the Intesa CEO said it's "too early" to gauge demand for the Veneto IPO, adding that it might be a better solution all round for Atlante, a state-backed fund, to take full control of the lender rather than be left with a small stake.
That's hardly a vote of confidence in the state of his own industry. But giving the market a dose of reality is fair enough, especially where Italian banks are concerned.
The last Italian bank IPO was an embarrassing flop: Atlante swooped in to buy more than 90 percent of Banca Popolare di Vicenza's stock after private investors snubbed the offering. To dismiss the possibility of this happening again would be pretty unrealistic.
Investors haven't forgotten the history of other rescues. Monte Paschi di Siena, bailed out twice since 2009, raised 3 billion euros ($3.4 billion) last year -- but its market value has plunged to about 1.6 billion euros, due to the lingering stack of bad loans on its books.
But celebrating the apparently inevitable intervention of a fund like Atlante isn't the best way of restoring investor confidence in the industry.
Italian banks aren't inherently un-rescuable -- after all, U.S. investment firm Oaktree Capital bought control of Banca Popolare Lecchese last year, while appetite for bundles of non-performing loans is picking up. The problem may just be that the right price has yet to be found.
Vicenza's indicative IPO price range was 10 cents to 3 euros -- a valuation described by one analyst at the time as "true nonsense" because it was so high, even at the low end of the range. These banks are either not being discounted aggressively enough, or not doing a good enough job at convincing investors they are viable. Finding a buyer means taking an ax to the price -- even if that pains existing shareholders.
For now, though, it looks like Italian bankers are backing Atlante as the winning horse in a race that is looking increasingly stage-managed.
This is understandable on one level: Intesa and Unicredit stumped up 1 billion euros apiece to seed Atlante, partly as a solution to help the industry without directly taking on a potentially painful acquisition.
But if Atlante has gone from a natural buyer to an inevitable buyer, that means the IPO process itself needs fixing or scrapping.
Atlante, at 4.25 billion euros, is still way too small to fix all the sector's capital and bad-loan issues. If private investors start to lose faith in the whole process, there's a risk of a downward spiral -- and of Italy's strongest banks being asked to add yet more funds to the pile in order to rescue the weakest.
Time for Messina and his colleagues to hurry up and put those shoes in the bargain bin.
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