MILAN: The Italian bank bailout fund that owns Banca Popolare di Vicenza and Veneto Banca has told the two ailing lenders to examine a possible tie-up and present a plan by year end to ensure their survival, it said on Friday.
The Atlante fund, which took over the two regional banks earlier this year after their attempts to raise capital flopped, said it had sent a letter to the boards of both lenders asking them to detail the measures they intend to adopt to “ensure business continuity”.
A spokesman for Atlante said the letter was the result of talks Atlante had held with the European Central Bank (ECB) in recent weeks.
A source with knowledge of the matter said the ECB wants the two banks to cut their pile of bad loans — which total 17 billion euros ($18.7 billion) — quickly as it deepens its scrutiny of weak Italian lenders. The ECB declined to comment.
Analysts estimate the two banks may need to raise up to 2.5 billion euros to meet the ECB demands, and that merging could help them cut costs.
The banks’ top executives said after meeting on Friday they had started a process which could lead to a merger, but that no decision had been taken yet.
So far the main focus in Italy’s banking crisis has been Monte dei Paschi di Siena, which is seeking to raise 5 billion euros by year-end to plug a capital hole triggered by the planned sale of a big chunk of its bad loans.
Italy’s third biggest lender, which fared the worst in European stress tests published this summer, was told by the ECB to slash its soured debts.
Other, smaller banks are receiving a similar message, raising the prospect they too will have to tap the market for funds in coming months.
Genoa-based Carige said on Thursday the ECB had told it to halve its problem loan stock over the next three years and raise its coverage ratio — which measures the extent to which bad loans have been written down — to 42 per cent by end-2019.
Its shares fell 8 per cent on Friday as investors fretted the bank will need to launch a capital increase to offset further write downs on its soured debts.
Italian banks have racked up around 360 billion euros in gross problematic loans due to a tough recession but have resisted pressure to sell them on as prices investors are ready to pay are, in many cases, below their book value.
Alessandro Penati, the head of the Atlante bailout fund, said earlier this month ECB President Mario Draghi had told him he did not want any “zombie bank”.
“This is an enormous problem ... I must raise capital and I don’t have time to restructure first,” Penati said.
