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ROME/BRUSSELS, June 13 (Reuters) - Italy is close to agreeing with the European Commission a deal to rescue ailing regional banks Popolare di Vicenza and Veneto Banca while limiting losses for investors, the country’s economy minister said on Tuesday.
Italy is racing to get a deal on bailing out the two Veneto-based lenders to stem a deposit flight which has already forced them to raise 10 billion euros ($11 billion) in debt using a state guarantee.
“A solution is now close”, Economy Minister Pier Carlo Padoan said in a statement, adding that “talks with European institutions are encouraging”.
Padoan said the solution would not entail losses for senior bondholders and depositors, triggering a rally in prices for the two banks’ senior bonds.
The yield on a March 2020 senior bond by Popolare di Vicenza fell to 7 percent on Tuesday after rising above 16 percent last week on concerns that the two banks would be wound down under rules that require investors in a bank to take a hit instead of taxpayers.
Italy is seeking to exploit an exception to those rules so as to limit losses only to shareholders and junior bondholders because it fears a full ‘bail in’ of investors would damage confidence in a still frail banking sector.
“The solution will not involve any form of bail-in,” Padoan said.
A spokesman for EU Competition Commissioner Margrethe Vestager confirmed on Tuesday that the authorities were looking for a way to spare senior bondholders from losses, adding that depositors would not be hit.
Europe has introduced bail-in rules to avoid a repeat of the costly bank bailouts seen during the financial crisis.
Italy’s government is working with its big banks UniCredit and Intesa Sanpaolo to get healthy Italian lenders to provide the 1.2 billion euros of private capital that the EC has demanded be raised to allow the rescue to go ahead.
But Italian banks are unwilling to pump more money into the two Veneto rivals after investing 3.4 billion euros to save them from bankruptcy last year.
On Tuesday UBI Banca’s supervisory board chairman Andrea Moltrasio said Italy’s fifth-largest bank had not been asked yet to take part in the rescue and had other priorities.
However, he later said the bank would consider any proposal from Italy’s Treasury should one materialise.
A source familiar with the matter said Italy was still hoping to persuade the EU authorities to reduce the amount of private capital it wants to be raised to save the Veneto banks. ($1 = 0.8927 euros) (Reporting by Steve Scherer and Stefano Bernabei in Rome, Francesco Guarascio in Brussels; Writing by Valentina Za; Editing by Greg Mahlich)