Popolare di Vicenza Owners Back IPO After ECB Ultimatum

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  • Investors approve the proposals at a meeting in Vicenza
  • Bank to raise up to $2 billion in initial public offering

Banca Popolare di Vicenza SCpA’s owners approved a plan to raise as much as 1.8 billion euros ($2 billion) in an initial public offering and transform the cooperative lender into a joint-stock firm, a crucial step toward ensuring its survival.

The proposals passed Saturday at a meeting in Vicenza, Italy, after the European Central Bank warned that without a capital increase the lender could be resolved, imposing losses on creditors. The ECB, which is stepping up pressure on Italy’s weakest banks, also told Banca Carige SpA in a letter last month to submit a new funding plan after losses widened and deposits shrank.

The two are just the most recent of the country’s lenders to draw special attention from the ECB, which has pushed to shore up euro-area banks since taking over as supervisor in late 2014. The central bank has told Banca Monte dei Paschi di Siena SpA, Italy’s third-largest lender, its future may depend on finding a buyer, and earlier this year asked at least six banks -- including UniCredit SpA, the biggest -- to submit more data on bad loans. 

“Italian banks are on the ECB’s radar right now, considering there are plenty of weaknesses,” said Giuseppe Sersale, a partner at Anthilia Capital Partners Sgr SpA in Milan. “News of the ECB’s recent actions revived concerns over the fragility of the country’s banking industry.”

An ECB spokesman declined to comment on issues at individual banks.

Bondholder Losses

Some Italian banks are struggling to boost profitability and capital after bad loans climbed to 360 billion euros, a mountain of debt that’s hindering lenders from making fresh loans and holding back an economic recovery. The situation for weaker banks deteriorated in recent months after the bailout of four regional lenders imposed losses on bondholders, causing fright among banking customers -- traditionally among the largest holders of such debt -- and spurring a flight of deposits.

“Problems with Italian banks are of a confidence nature,” said Gianluca Ziglio, a strategist at Sunrise Brokers LLP in London. “On the domestic side, there is a growing concern about the safety of banks after the implementation of bail-in rules, while on the international side investors are looking with concern at the sector given the performance of the loans Italian banks have given.”

Banca Carige, in a statement Thursday, said it, “like other comparable Italian institutions, has faced unexpected tensions,” including an impact on its direct funding. The shares dropped 10 percent Friday, and fell 5.7 percent by 11:40 a.m. on Monday in Milan, bringing the decline this year to 58 percent.

Capital Hole

The statement echoes comments from Monte dei Paschi Chief Executive Officer Fabrizio Viola, who said in January the bank had suffered “limited” deposit withdrawals during a stock-market rout that erased more than half the lender’s market value. The Siena-based bank has the most bad loans relative to tangible equity among Italian lenders.

The ECB’s actions risk increasing the concerns of customers and investors at weaker banks, leading to a downward spiral, said Sersale.

“We are noticing a dichotomy in the ECB’s behavior,” said Emanuele Vizzini, who manages 3.5 billion euros as chief investment officer at Investitori Sgr in Milan. “The monetary policy arm is supporting the banking system and taking actions to help banks spur lending, while the supervisory arm is too rigid, in particular with banks of peripheral countries.”

The worst-performing banking stocks, including Monte dei Paschi, Banco Popolare SC and Unione di Banche Italiane SpA, are trading at less than half of their tangible book value. That means they are worth less than investors would expect to receive if the firms liquidated assets.

Popolare di Vicenza, the country’s 10th-largest bank with about 40 billion euros of assets, employs 5,500 people and operates 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.

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 loaned 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.

Banking Reform

A sweeping reform of Italy’s banks a year ago is forcing the biggest cooperative lenders to become joint-stock companies. Restrictions on ownership and voting rights for these community-oriented banks have contributed to lax lending policies and stood in the way of consolidation.

Carige was one of the two Italian lenders forced to plug a capital deficit that came to light during the ECB’s health check in 2014. Almost two years later, the bank is still struggling to strengthen its balance sheet and restore confidence, while the Malacalza family, Carige’s main investor with an 18 percent stake, is proposing to replace the bank’s top management, including CEO Piero Luigi Montani, whose term expires in March.

The ECB instructed Carige to submit a new funding plan by the end of the month and a strategic review by the end of May to restore compliance with supervisory requirements, the company said Thursday. The Genoa-based lender restated its 2015 net loss to 102 million euros from 45 million euros.