Intesa Proposes Buying Veneto Banks' Assets for Token PriceBy and
Lender would only do deal on condition that its CET1 not hurt
Analysts say solution would be different than Popular rescue
Intesa Sanpaolo SpA offered to take on the assets of two troubled lenders in Italy’s northern Veneto region for a token price on the condition that it wouldn’t harm its own capital and dividends. Its shares rose.
The bank’s proposal excludes soured debt, higher-risk performing loans and subordinated bonds, along with shareholdings and other “legal relationships,” Intesa said in a statement on Wednesday. A purchase would only move forward if it doesn’t lower Intesa’s common equity Tier 1 ratio, the bank said.
After Spain organized an orderly sale of troubled Banco Popular Espanol SA, Italy is the next country under pressure to clean up its banking system, seeking to rescue Veneto Banca SpA and Banca Popolare di Vicenza SpA without hurting savers and senior bondholders or violating European rules on state aid. Analysts said buying the troubled banks on the cheap would boost Intesa’s position, though other bidders may emerge if the price is so low.
“A deal under those conditions is very positive for Intesa, which would emerge stronger than before,” said Fabrizio Bernardi, an analyst at Fidentiis Equities. “Details are still lacking, but it’s crucial for the buyer that a purchase wouldn’t hurt dividend distribution and capital buffers.”
The Treasury’s most recent proposal calls for selling the lenders -- imposing losses on shareholders and subordinated bondholders -- and spinning off their bad assets in a new company financed by the state before the sale of the good assets, people with knowledge of matter have said.
Intesa shares closed 2.5 percent higher, giving it a market value of 43.5 billion euros ($49 billion), the highest among Italian banks.
Intesa said it’s ruling out a capital increase as part of any transaction, and any deal would need to be approved by authorities and require some legal changes.
“We wonder why, at such favourable conditions, other large credible bidders would sit on the sidelines,” said Andrea Filtri, an analyst at Mediobanca SpA.
While Banco Santander SA’s eleventh-hour decision to buy Popular in a fire sale arranged by European regulators, without any state aid, removed one the biggest risks left over from the crash in Spain earlier this month, months of talks between Italy and European authorities weren’t enough to reach a deal.
News on the two Veneto banks “suggests that the solution might be different in some respects from the case of Banco Popular, where Santander effectively forced the bank to take provisions as a precondition for a takeover, and common shareholders and subordinated bondholders were wiped out, with Santander announcing a capital increase,” Puja Karia, John Raymond and Simon Adamson, analysts at CreditSights, wrote in a note Wednesday.
Italy’s plan to get approval for a state-backed recapitalization of 6.4 billion euros was thrown into doubt last month after the commission said the banks must raise 1.2 billion euros of private capital to receive state aid, people with knowledge of the matter have said.
Since then, Italy has failed to find local investors, private equity funds or other financial institutions willing to provide fresh money for the two unlisted banks, people have said. The lenders got billions of euros from the state-orchestrated Atlante fund in 2016 after their public offerings failed.
“Intesa’s solution would be fully compliant with European rules only if senior bondholders would be haircut,” said Carlo Alberto Carnevale Maffe, a professor of business strategy at Milan’s Bocconi University. “The approval of a bad bank financed by the state to avoid hurting senior bonds would circumvent rules on banks’ resolutions, and would undermine the credibility of the banking union’s pillars.”
Europe’s Bank Recovery and Resolution Directive allows a “good bank/bad bank” solution. This would probably involve putting the two lenders into resolution and then writing down the liabilities of the “bad” bank sufficiently to recapitalize the “good” bank. The impaired liabilities would potentially include senior unsecured bonds and eligible deposits, and the taxpayer wouldn’t need to contribute.
— With assistance by Luca Casiraghi