Italian Bank's Survival at Stake in Vote on Stock Listing

  • ECB warns Banca Popolare di Vicenza may face resolution
  • IPO to raise $2 billion capital must be held by end of April

Banca Popolare di Vicenza SCpA will ask shareholders Saturday to approve a survival plan that depends on finding investors willing to buy as much as 1.8 billion euros ($2 billion) of stock in the loss-making, cash-starved lender.

Failure to carry out an initial public offering to raise capital by the end of April may lead to supervisory measures, including the bank’s resolution, the European Central Bank said in a letter published by the Italian lender this week. Shareholders must also agree to convert to a joint-stock company.

Popolare di Vicenza, the country’s 10th largest bank with about 40 billion euros of assets, is among Italian lenders under pressure from Europe’s new banking supervisor to shore up their finances. Italian bank shares and bonds have tanked this year over fears that lenders have yet to come to terms with more than 360 billion euros of bad loans clogging their books.

Popolare di Vicenza, a cooperative bank, employs 5,500 people at more than 600 branches. Its current shareholders are mainly customers who already lost most of their investment on writedowns that have shaved about 90 percent from the book value in recent years.

“I expect shareholders will back those unpleasant measures, simply because they have no alternatives to allow the bank to survive,” said Wolfram Mrowetz, chairman of Alisei SIM, a Milan brokerage.

Third Tap

It will be the third time the bank has tapped investors in as many years, having raised 1.2 billion euros between 2013 and 2014. Those cash calls are under investigation after an ECB inspection revealed that the bank lent money to customers to buy the shares, artificially boosting reserves. In some cases managers allegedly signed letters guaranteeing the bank would return or repurchase the shares.

The bank deducted 1.1 billion euros from its capital in December to reflect the accounting sleight of hand. Its common equity Tier 1 ratio dropped to 6.65 percent, below the ECB-recommended 10.25 percent. Popolare di Vicenza has about 5.5 billion euros of outstanding bonds.

The bank is at a “crossroads” the ECB said in the letter dated Feb. 24 and signed by Daniele Nouy, who heads the supervisory arm. “We invite you to inform Popolare di Vicenza shareholders of the content of this letter during the March 5 assembly and to underline the importance of their decisions for the future of the bank.”

Not Alone

Other Italian banks are also under the gun. Banca Carige SpA, based in Genoa, received a letter last month from the ECB instructing it to submit a new funding plan and a strategic review, while Banca Monte dei Paschi di Siena SpA, Italy’s third-largest lender, has been told to look for a buyer.

Italy’s FTSE MIB was down 0.5 percent at 1:44 p.m. after official data pointed to lackluster economic growth in the fourth quarter. The worst-performing stocks included seven banks, with Monte Paschi, Banco Popolare SC and Unione di Banche Italiane SpA among those trading at less than half of their tangible book value. That means investors think they are worth less than investors would expect to receive if the firms liquidated assets. Beyond the benchmark index, Banca Carige was 9 percent lower after disclosing the ECB letter late Thursday.

Popolare di Vicenza logged a 1.4 billion-euro loss last year as it cleaned up its balance sheet, setting aside money for bad loans, risks and charges and writing down intangible assets. Chief Executive Officer Francesco Iorio is also cutting costs and overhauling governance, including scrapping a rule restricting each shareholder to one vote regardless of the size of the holding. Common among Italy’s community-oriented banks, the limit on voting rights could discourage potential investors in the stock sale.

“Even if shareholders have all reasons to be angry, there is no other choice for them than continuing to back the bank,” Mrowetz said.

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