Italy, EU Race to Find Solution for Two Ailing Veneto Banks (2)

Jun 19, 2017 7:30 am ET

(Bloomberg) -- Italian finance officials and the European Commission are racing to find a solution for two troubled banks in the northern Veneto region that have weighed on the nation’s financial system.

Finance Minister Pier Carlo Padoan said Sunday the matter of Veneto Banca SpA and Banca Popolare di Vicenza SpA is being worked on “actively,” without offering details. The European Commission is working “hand in hand” with Italian authorities and Europe’s Single Supervisory Mechanism, and is making “good progress” on reaching a solution within the bloc’s rules, it said in a statement on Monday.

Rome’s la Repubblica newspaper said Sunday that the Italian government and bank managers are seeking an agreement “by the end of next week.” Padoan said last week that an accord with the Commission in Brussels was “close.”

Still there were differing news media accounts of the status of the talks with European Union officials who will need to sign off on any state involvement.

La Stampa, quoting officials in the EU and the Treasury in Rome, said the current rescue plan has been determined to be unfeasible. The newspaper said a split into so-called good banks for performing assets and bad banks for deteriorated credit was one possibility. Under this option, Intesa Sanpaolo SpA may agree to buy the good banks, while the bad assets would be sold, the newspaper said on Monday.

The government is seeking European permission for a state-backed recapitalization of 6.4 billion euros ($7.1 billion). The plan depends on the Veneto banks raising 1.2 billion euros of private capital -- a condition they have failed to fulfill.

Last week Italy hired Rothschild & Co. to find a solution, according to people with knowledge of the matter who declined to be identified because the matter isn’t public. The Treasury also has sought contributions from the country’s biggest banks, UniCredit SpA and Intesa, other people have said. UniCredit is willing to help if other lenders participate, a proposal that has fallen flat with smaller banks, those people said.

Representatives for UniCredit, Intesa, Rothschild and the Veneto banks declined to comment. Officials for the Treasury weren’t immediately available to comment.

(Updates with European Commission comment in second paraagraph.)

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