Italian Banks Rise as Officials, Executives Discuss Fund

  • Vehicle that would support bank IPOs may be worth EU5 billion
  • Bank shares extend gains, paced by Monte dei Paschi, UniCredit

Italian Banks Seek Unified Private Funding Solution

Italian bank executives met with treasury and central bank representatives as officials sought to hammer out an agreement to create a fund supporting troubled lenders planning to raise capital.

Officials and leaders of banks including UniCredit SpA and Intesa Sanpaolo SpA are seeking to finalize a plan to set up a vehicle that would help cooperative lenders in sales of shares and bad debt. The fund would be financed by banks and privately held institutions, with a small stake held by state lender Cassa Depositi e Prestiti.

Banca Popolare dell’Emilia Romagna Scarl Chief Executive Officer Alessandro Vandelli, speaking on the sidelines of the meeting Monday evening, said the fund may be worth about 5 billion euros ($5.7 billion), without elaborating further on the potential range in its value. "Today they explained the terms of the issue,” Vandelli said. “We look forward to receiving documentation from the ministry, so we can submit it to our boards later." The CDP’s stake has yet to be quantified, Vandelli said.

Italian officials are seeking to reach an agreement that would help unprofitable lenders lure private investors as the European Central Bank steps up pressure on the country to tackle an estimated 360 billion euros in bad debt. With the economy struggling to recover from a recession, Prime Minister Matteo Renzi earlier this year struck an agreement with the European Commission that allows banks to bundle their soured loans into securities for sale, while purchasing a state guarantee for the least-risky portion.

‘Systemic Risk’

Such a fund would “remove some of the systemic risk affecting Italian banks since the start of the year,” Riccardo Rovere, an analyst at Mediobanca SpA, wrote in a note Monday. “On the other hand, the size of the fund, its functioning and means and ways to use such liquidity are extremely important.”

Italian lenders extended gains, paring some losses that have put them among the worst performers on the Bloomberg Europe Banks and Financial Services Index this year. Banca Monte dei Paschi di Siena SpA jumped 9.8 percent in Milan on Monday, while UniCredit advanced 2.4 percent and Intesa rose 1.7 percent.

Adding urgency to the plan are Banca Popolare di Vicenza SCpA and Veneto Banca SCpA, which need to raise almost 3 billion euros in total to strengthen capital and avoid resolution measures over coming weeks.

UniCredit is pushing ahead with the initial public offering of Popolare Vicenza that it’s running. The lender will start gathering orders for the IPO on April 19 and shares should begin trading on May 3, according to terms seen by Bloomberg. 

‘Good News’

Financial institutions are “intensively” working on a solution that would see private investors participate in the fund, UniCredit CEO Federico Ghizzoni said last week. Italy’s largest bank would be among investors, he said, without elaborating on the process or technicalities of such a plan.

Renzi said an announcement on a bank deal is likely to be made this week, according to the Radiocor news wire.

Fortress Investment Group, the New York-based private-equity firm, has approached Pop. Vicenza to buy a stake in the lender, a person with knowledge of the matter has said. Under the proposal, Fortress would purchase an unspecified amount of bad loans from the unprofitable lender and inject capital in the IPO process, the person said.

“This is all good news, but the devil is in the detail,” Fabrizio Bernardi, an analyst at Fidentiis Equities, wrote in a report Monday. “There is ample room to disappoint given the large and aggressive expectations of the street for a quick and orderly solution of banks’ capital shortfalls related to asset quality issues.”

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